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HORNBOOK  CASE  SERIES 


ILLUSTRATIVE    CASES 


ON 


PARTNERSHIP 


By   EUGENE  ALLEN    GILMORE 

Author  of  Gilmore  on  Partnership 
Professor  of  Law,  University  of  Wisconsik 


A  COMPANION  BOOK  TO  GILMORE  ON  PARTNERSHIP 


St.  Paul,  Minn. 
WEST  PUBLISHING   CO. 

1913 


COPTEIGHT,    1913 
BY 

WEST  PUBLISHING  COMPANY 
(Gilm.Part.) 


T 


b 


THE  HORNBOOK   CASE  SERIES 


It  is  the  purpose  of  the  publishers  to  supply  a  set  of  Illustrative 
Casebooks  to  accompany  the  various  volumes  of  the  Hornbook  Series, 
to  be  used  in  connection  with  the  Hornbooks  for  instruction  in  the 
classroom.  The  object  of  these  Casebooks  is  to  illustrate  the  prin- 
ciples of  law  as  set  forth  and  discussed  in  the  volumes  of  the  Horn- 
book Series.  The  text-book  sets  forth  in  a  clear  and  concise  manner 
the  principles  of  the  subject;  the  Casebook  shows  how  these  princi- 
ples have  been  applied  by  the  courts,  and  embodied  in  the  case  law. 
With  instruction  and  study  along  these  lines,  the  student  should  se- 
cure a  fundamental  knowledge  and  grasp  of  the  subject.  The  cases 
on  a  particular  subject  are  sufficiently  numerous  and  varied  to  cover 
the  main  underlying  principles  and  essentials.  Unlike  casebooks 
prepared  for  the  "Case  Method"  of  instruction,  no  attempt  has  been 
made  to  supply  a  comprehensive  knowledge  of  the  subject  from  the 
cases  alone.  It  should  be  remembered  that  the  basis  of  the  instruc- 
tion is  the  text-book,  and  that  the  purpose  of  these  Casebooks  is  to 
illustrate  the  practical  application  of  the  principles  of  the  law. 

West  Publishing  Company. 
(lii)* 


729912 


TABLE  OF  CONTENTS 


WHAT    CONSTITUTES    A    PARTNERSHIP 

Page 

I.     Partnership   Inter    Se — True  Partnership    1 

II.     Partnership  the  Result  of  Intention   7 

III.  Partnership  by  Operation  of  Law — Partnership  as  to  Third  Par- 

Ues    10 

1.     Exceptions    15 

IV.  Doctrine  of  Partnership  as  to  Third  Parties  Overthrown 21 

V.    Tests   of   Intention — In    General    25 

VI.     Sharing    Gross    Returns    30 

VII.     Sharing  Profits   31 

VIII.     Sharing  Profits  and   Losses 34 

IX.     Common  Ownership  of  Property 36 

X.     Joint  Enterprise  or  Business   39 

XI.     Relations  Distinjruishable  from  Partnership   44 

XII.     Contract  for  a   Partnership    54 

XIII.  Promoters  of  Corporations — Defective  Corporations 58 

XIV.  Partnership  by  Estoppel   60 

FORMATION  AND  CLASSIFICATION  OF  PARTNERSHIPS 

I.     Partnership  Arises  from  a  Contract    64 

II.    Requirements  of  the  Contract   66 

1.  Competency  of  the  Parties   66 

2.  Consideration     72 

3.  Formalities — Statute  of  Frauds    73 

IIL     Subject-Matter     76 

IV.     Joint-Stock  Companies  78 

THE    NATURE   AND   CHARACTERISTICS    OF   A    PARTNERSHIP 

I.     Various  Conceptions  of  a  Partnership  83 

II.    The  Partnership  Name   85 

III.  Partnership    Property     87 

1.  What  is   Included  in  Partnership  Property    87 

2.  Partnership  Capital   89 

3.  Good  Will    92 

IV.  Title  to  Partnership  Property — How  Taken  and  Held 97 

V.     Conversion    of    Partnership    Realty    into    Personalty 100 

VI.     Nature  and  Extent  of  I'artner's  Interest  in  Partnership  Property  109 

VII.     Transfer  of  Partnership  Property   112 

1.     By  Act  of  the  Partnership  112 

VIII.     Firm  Creditors'  Rights  in  Firm  Assets — Partner's  Lien 116 

IX.     Transfer  by  Act  of  a  Single  Partner 128 

X.     Successive  or  Simultaneous  Transfers  of  Each  Partner's  Interest  135 

XI.     Effect  of  Death  of  Partner  on  Partnership  Property 149 

XII.     Surviving  Partner  as  Quasi  Trustee  153 

XIII.    Agreement  of  I'artners  Controlling  Property  After  Death  of  Part- 
ner      154 

Gilm.Pabt.  (v) 


VI  TABLE  OF  CONTENTS 


NATURE,  EXTENT,  AND  DURATION  OF  PARTNERSHIP 
LIABILITY 

Page 

I.     Nature  of  Liability  in  Contract  157 

II.     Partnership  Liability  and  Joint  Liability    161 

III.  Quasi  Severable  Character  of  Joint  Obligations  in  Equity 16;; 

IV.  Liability  of  Estate  of  Deceased  Partner  168 

V.     Extent  of  Liability  in  Contract 171 

VI.     Nature  and  Extent  of  Liability  in  Tort 172 

VII.     Commencement  of  Partnership  Liability  In  Contract — Liability  of 

an   Incoming  Partner   174 

Till.     Liability  of  Retiring  Partner   177 

IX.     Termination  of  Partnership  Liability  in  Contract — Dissolution..  1S4 

THE  POWERS  OP  PARTNERS 

I.     Origin  and  Nature  of  the  Partner's  Power  to  Bind  the  Firm 191 

II.     Test   of  Authority — Nature   of   Question 19.'5 

III.  Particular  Powers  Considered   19S 

IV.  Power  to  Subject  Firm  to  Tort  Liability 210 

V.     Powers    of    Partners   After    Dissolution 216 

VI.     Powers  of  Surviving  Partner    224 

RIGHTS   AND  DUTIES   OF   PARTNERS   INTER   SE 

I.  Duty  to  Conform  to  the  Partnership  Agreement   229 

II.  Right  to   Participate  in   the  Management    230 

III.  Control  of  Majority    231 

IV.  Right  to  Information  Concerning  Business   236 

V.  Duty  to  Devote  Themselves  to  the  Business  and  to  Exercise  Care 

and   Skill    238 

VL     Duty  to   Observe  Good  Faith    240 

VII.     Right  to  Compensation  for  Services   247 

VIII.     Right  to  Indemnity  and  Contribution  248 

IX.     Distribution  of  Assets  Among  Partners    253 

X.     Partner's  So-Called  Lien  257 

REMEDIES    OF    CREDITORS 

I.  Remedies  at  Law — Creditors  of  the  Partnership 262 

II.  Creditors  of  the  Separate  Partners    265 

III.  Garnishment   of   Partnership    Debtors    273 

IV.  Remedies  in  Equity — Insolvency  or  Bankruptcy  of  Firm 276 

V.  Rights  of   Secured  Creditors    283 

VI.     Rights  of  Joint  and  Several  Creditors — Double  Proof  286 

VII.     Insolvency  or   Bankruptcy  of  a   Partner    288 

VIII.     Rights  Against  the  Estate  of  Deceased  Partner  293 

ACTIONS  BETWEEN  PARTNERS 

I.  Action  on  Partnership  Claim  or  Liability — At  Law 296 

II.  Actions  Between  Firms  with  Common  Member 299 

III.  Action  at  Law  on  Individual  Obligation 300 

IV.  Equitable  Actions  in  General — Jurisdiction    305 

V.  Accounting  and  Dissolution   307 

VI.     Specific    Performance    312 

VII.     Injunction  and  Receiver   312 


TABLE  OF  CONTENTS  Vll 


ACTIONS  BETWEEN  PARTNERS  AND  THIRD  PERSONS 

Page 

I.  In  General — Parties  to  Actions  by  the  Firm 315 

II.  Parties  to   Actions   Against  the    Firm 319 

III.  Effect  of  Changes  in  Firm — Admission  of  New  Member 320 

IV.  Retirement  of  Old  Member    322 

V.  Death   of  Member    324 

VI.     Banliruptcy   and    Insolvency    326 

TERMINATION  OF  THE  PARTNERSHIP 

I.     By  Act  of  the  Partners — Mutual  Assent  330 

II.     Dissolution  by  Operation  of  Law  332 

III.     Dissolution   by  Judicial  Decree — Impossibility  of  Success 334 


TABLE    OF  CASES 


Page 

Adams  v.  Hackett 152,  325 

Andrews'  Heirs  v.  Brown   ...149,  324 

Arnold  v.   Nichols    176,  320 

Ash  V.  Guie 51 

Austin  V.  Holland 186 

Bassett  v.  Miller   151,  324 

Beecher  v.  Bush   25 

Bigelow  V.  Gregory  58 

Bond    V.    Gibson    198 

Bracken  v.  Kennedy 305 

Briggs,   Ex   parte    2 

Broadway  Nat.  Bank  v.  Wood...  282 

Brooke  v.  Washington 316 

Buck  V.  Smith   312 

Burgan  v.  Lyell 208 

Burley  &  Harris  v.  Harris   297 

Burns  v.  Nottingham 300 

Burt  V.  Lathrop 40 

Burton  v.  Wookey   240 

Bush  V.  Linthicum  70 

Butchart  v.   Dresser    226 

Butler  Sav.  Bank  v.  Osborne  ...     36 

Carter  v.  McClure   78 

Cash  V.  Earnshaw 334 

Central    Trust    &    Safe    Deposit 

Co.  V.  Respass 76 

Clafflin  Co.  v.  Evans  131 

Clifton  V.  Howard   34 

Coleman  v.  Eyre 72 

Cook  V.  Canny 303 

Cox  &  Wheatcroft  v.  Hickman..     21 

Crosby  v.  Timolat   299 

Darby  v.  Darby    100 

Darby   v.    Gillipan    116 

Davies  v.  Humphrey 279 

Davis  V.  Howell   278 

Dean  v.  Dean    89 

Dewey  v.  Chapin    153 

Doggett  V.  Dill    169 

Doner   v.    Stauffer    135 

Donnell  v.  llarshe    41 

Dow  V.  State  Bank  of  Sleepy  Eye     54 

Downs  V.  Jackson   248 

Giui.Part.  (ii) 


Page 

Dry  V.  Boswol]    30 

Duncan  v.  Lowndes   200 

Duryea    v.    Whitcomb    4 

Dyer  v.  Clark   103 

Fechteler  v.  Palm  Bros.  &  Co...  31 

Finckle  v.  Stacy   39 

Forster  v.  Lawson   318 

French   v.   Styring    48 

Gibbs'    Estate,  In   re   44 

Gille   V.   Hunt    98 

Gilruth  V.   Decell    214 

Goodspeed  v.  Wiard  Plow  Co....  217 

Grace  v.   Smith    10 

Groth   V.   Kerstiug    253 

Guidon  v.  Mary  Robson  319 

Hallowell  v.  Blackstone  Nat.  Bank  83 

Halstead,  Appeal  of    44 

Haney  Mfg.  Co.  v.  Perkins 210 

Harman  v.  Johnson 212 

Harrison  v.  Jackson   205 

Ilaskins  v.  D'Este   85 

Hawkins  v.   Mahoney    286 

H.  B.  Clafflin  Co.  v.  Evans   131 

Hedley  v.  Bainbridge   202 

Hendren  v.  Wing   97 

Hicks  v.  Wyatt 175,  320 

Hoaglin  v.  C.  M.  Henderson  &  Co.  66 

Hoare  v.  Dawes 1 

Hughes  V.  Gross  321 

Ilion  Nat.  Bank,  In  re 283 

Irwin   v.   Williar    196 

Jackson  Bank  v.  Durfoy 119 

Januey  v.   Springer    130 

Jeffereys  v.    Small    149 

Jennings  v.   Rickard    24.". 

Johnson  v.  Wlngtield  2(!9 

Johnston  v.  Dutton's  Adm'r 231 

Judd  Linseed  &  Sperm  Oil  Co.  v. 

Hubbell     171 


Katz  V.  Brewington 230 


TABLE    OF    CASES 


Page 

Kell   V.  Nalnby   315 

Kendall  v.  Hamiltou  165 

Lambert's  Case  128 

Led  ford  v.  Kmerson 302 

Leflier  v.  Rice   199 

Leggett  V.  Hyde  16 

Leserman  v.  Bernheimer    255 

Lindner  v.   Adams   County  Bank  224 

Lindsey  v.  Stranahan  2-17 

Lord  V.  Hull 307 

Lyon   V.   Johnson    1S4 

Lyth  V.  Ault  &  Wood   323 

McAreavy  v.  Magirl  179,  323 

Major  V.  Hawkes   216 

Marsh  v.  Davis 73 

Mason   v.    Eldred    157,  315 

Mattingly  v.   Stone's   Adm'r    238 

Mayberry  v.  Willoughby 220 

Meech  v.  Allen 262 

Menagh  v.  Whitwell   139 

Miller  v.  Neimerick   219 

Mitchell  V.  Reed  241 

Monroe  v.   Conner    233 

Morgan  v.   Richardson   201 

Motley  V.  WickofE  177,  322 

Murphy  v.  Crafts  229 

Murray  v.  Murray   28& 

Newark  Coal  Co.  v.   Spangler   ..     92 

Xotley,  Ex  parte 2 

Noyes  v.  Cushman 43 

Ogden  V.  Arnot  320 

Parker  v.  Pistor   265 

Pearce  v.  Chamberlain   332 

Pease  v.  Cole  203 

People  V.  E.  Remington  &  Sons..  283 

People's   Bank   v.    Shryock    .273 

Phillips  V.  Phillips 7,  64 

Place  V.  Sweetzer  207 

Poole  V.  Fisher 62 

Pooley  V.   Whitmore   193 

Pratt  V.  McGuinness   Ill 


Preston  v.  Garrard. 


Page 
.181,  323 


Queen,  The  v.  Robson 49,     76 

Robinson  Bank  v.  Miller 87 

Rodgers  v.  Meranda    276 

Rollins  V.  Stevens 200 

Rose  V.  Coffield   188 

Rothwell  V.  Humphrej'S   202 

Ruffin,  Ex  parte   112 

Russell  V.  Cole   291 

Sabel  V.  Savannah  Rail  &  Equip- 
ment Co 64 

Sadler  v.  Nixon   296 

Sanborn  v.  Royce 266 

Shannon  v.   Wright    312 

Simpson,  In  re   154 

Solomon  v.  Kirkwood  330 

Stearns  v.  Houghton   325 

Stewart's   Case    293 

Straffin's  Adm'r  v.  Newell 206 

Tapley  v.  Butterfield 128 

Taylor  v.  Fields   109 

Thayer  v.  Humphrey 279 

Thompson  v.  First  Nat.  Bank...  60 

Thorpe  v.  Jackson  163 


Voorhis  v.  Childs'  Ex'r 


168 


Warren  v.  Taylor 257 

Warring   v.   Arthur    249 

Waugh  V.  Carver   12 

Whelan  v.   Shain    161 

White   v.    Smith    172 

Whiting   V.    Farrand    217 

Wiggins  V.  Blackshear 124 

Wilkinson  v.  Frasier 15 

Winship     v.     Bank     of     United 

States   191 

Wolf   V.   Mills    211 

Wolff  V.  Madden    174,  320 

Wood  V.  Braddick   218 

Woodward-Holmes  Co.  v.  Nudd..  107 

Yorks  V.  Tozer   236 


HORNBOOK  CASES  ON 
PARTNERSHIP 


WHAT  CONSTITUTES  A  PARTNERSHIP 
I.  Partnership  Inter  Se — True  Partnership  * 


HOARE  V.  DAWES. 

(Court  of  King's  Bench,  17S0.     1  Doug.  371.)" 

Defendants  and  others  employed  Contencin,  a  broker,  to  purchase 
a  lot  of  tea,  each  party,  including  the  broker,  taking  a  certain  share 
of  the  whole  amount  purchased,  the  lots  being  too  large  for  any  one 
dealer.  The  practice  was  for  those  desiring  to  join  in  the  purchase 
to  give  orders  or  warrants  to  the  broker  for  the  delivery  of  the  quanti- 
ty purchased  on  payment  being  made.  These  warrants  were  often 
pledged  and  money  raised  on  them.  The  broker  in  this  case,  having 
pledged  the  warrants  given  him  for  a  loan  from  plaintiff,  became  bank- 
rupt. The  price  of  tea  having  fallen  in  the  meantime,  plaintiff  was  un- 
able to  realize  from  the  warrants  the  amount  of  the  loan.  He  brought 
the  present  action  against  all  the  defendants,  on  the  ground  that  all  the 
parties  interested  in  the  purchase  were  to  be  considered  as  partners 
and  jointly  and  severally  liable  for  the  whole  purchase.  Each  de- 
fendant had  fully  paid  for  his  share  of  the  whole  purchase  which  he 
had  agreed  to  take.  There  was  no  agreement  between  the  parties  as 
to  the  redisposal  of  the  tea. 
Verdict  for  defendant,  and  rule  nisi  for  a  new  trial. ^ 
Lord  Mansfield.  I  considered  this,  at  first,  as  a  case  of  dormant 
partners.  The  law  with  respect  to  them  is  not  disputed,  viz.,  that  they 
are  liable  when  discovered,  because  they  would  otherwise  receive 
usurious  interest  without  any  risk;  but  towards  the  end  of  the  cause 
the  nature  of  the  transaction,  and  of  these  loans,  was  more  clearly 
explained,  and  I  was  satisfied  with  the  verdict,  and  am  now  confirmed 
in  my  opinion.  The  evidence  of  Cartony  is  irrelevant,  because  he 
said  the  broker  borrowed  the  money  for  him;  and,  besides,  he  did 
not  dispute  the  demand.  Is  this  a  partnership  between  the  buyers? 
I  think  it  is  not;  but  merely  an  undertaking  with  the  broker  by  each 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  1, 

2  Statement  of  facta  rewritten, 

Gilm.Part. — 1 


Z  WHAT  CONSTITUTES  A  PARTNERSHIP 

for  a  particular  quantity.  There  is  no  undertaking  by  one  to  advance 
money  for  another,  nor  any  agreement  to  share  with  one  another  in  the 
profit  or  loss.  The  broker  undertakes  to  buy  and  sell,  but  makes  no 
advance  without  the  security  of  the  tea  warrants,  which  are  consid- 
ered as  cash,  and  pass  by  delivery,  like  East  India  bonds.  These 
warrants  are  pawned  with  the  lender,  but  the  broker  has  no  power 
to  pledge  the  personal  security  of  the  principals.  He  cannot  sell  the 
warrants,  and  borrow  more  money  on  such  personal  security.  It 
makes  no  difference  whether  specific  tea  or  the  warrants  are  delivered 
at  the  sale.  It  would  be  most  dangerous,  if  the  credit  of  a  person, 
who  engages  for  a  fortieth  part,  for  instance,  should  be  considered  as 
bond  for  all  the  other  39  parts,  Non  haec  in  foedera  veni.  The  wit- 
nesses did  not  merely  speak  to  opinion,  but  to  matter  of  fact,  and  their 
own  dealings.  They  said  the  money  was  lent  to  the  broker  alone. 
Sometimes,  indeed,  lenders  have  required  to  know  the  principals.  They 
did  not  trust  the  broker  alone;  but  all  others  who  do  not  ask  after 
the  principals  do.  The  note  is  given  as  a  collateral  security  person- 
ally by  the  holder  of  the  warrant,  not  in  the  character  of  a  partner 
with  other  persons,  nor  as  a  broker  for  them. 

WiLLES  and  Ashhurst,  JJ.,  of  the  same  opinion. 

BuLLER,  J.  This  is  a  very  plain  case.  The  plaintiffs  had  no  rea- 
son to  consider  the  broker  as  a  partner  with  the  other  persons;  for, 
though  he  had  a  share,  he  did  not  act  or  appear  as  a  partner,  nor  were 
they  partners  as  among  themselves.  They  had  never  met  or  con- 
tracted together  as  partners.  If  this  transaction  were  sufficient  to 
constitute  a  partnership,  a  broker  would  have  it  in  his  power  to  make 
500  persons  partners,  who  had  never  seen  nor  heard  of  one  another, 
or  might,  at  his  pleasure,  convert  his  principals  into  partners,  or  not, 
without  any  authority  from  them,  by  taking  joint  or  separate  war- 
rants. 

The  rule  discharged. 

Ex  parte  BRIGGS. 
Ex  parte  NOTLEY. 

(Court  of  Review  and  on  Appeal  before  the  Lord  Chancellor,  1833. 
3  Deac.  &  C.  367.) 

This  was  an  appeal  by  Miss  Briggs,  a  petitioning  creditor  in  a 
bankruptcy  proceeding  against  one  Notley,  from  a  decision  refusing 
to  admit  the  proof  of  her  debt,  on  the  ground  that  it  arose  out  of  a 
partnership  between  her  and  the  bankrupt. 

There  was  also  a  petition  by  the  bankrupt  to  annul  the  bankruptcy 
proceedings  on  the  same  ground. 

Erskine,  C.  j.8  ♦  *  *  The  undisputed  facts  are  these:  Miss 
Briggs  advanced  £230  to  the  bankrupt,  on  a  bond  and  warrant  of 

8  Part  of  the  opinion  of  Erskine,  G.  J.,  is  omitted  and  statement  of  facts 
rewritten.    Opinion  of  Sir  G.  Rose  omitted. 


PAETNERSHIP  INTER  SE — TRUE  PARTNERSHIP  3 

attorney  for  securing  the  repayment  on  the  2d  November,  1837,  with 
interest  at  £5  per  cent.  This  money  was  advanced  to  the  bankrupt 
for  the  purpose  of  enabUng  him  to  estabhsh  a  manufactory  for  choco- 
late. It  is  said  that  this  is  not  a  good  petitioning  creditor's  debt,  as 
there  was,  besides  the  written  documents,  an  agreement  that  Miss 
Briggs  was  to  share  in  the  profits  of  the  manufactory,  and  that  the 
loan,  therefore,  must  be  considered  as  a  debt  arising  out  of  the  part- 
nership. Now,  I  have  always  understood  the  distinction  to  be  this: 
If  the  transaction  between  two  partners  is  intended  to  form  an  item 
in  the  partnership  accounts,  then  you  cannot  say  that  there  is  a  legal 
debt  owing  from  one  to  the  other  until  a  balance  is  struck,  after 
taking  the  partnership  accounts.  But  after  an  account  has  been  taken, 
and  a  balance  struck,  then,  although  the  partnership  continues,  the 
amount  of  the  balance  will  be  provable  under  a  commission,  or  be  a 
good  petitioning  creditor's  debt.  The  cases  in  which  the  objection 
of  a  partnership  has  been  allowed  to  prevail  are  those  in  which  money 
is  actually  brought  into  the  partnership  account,  and  where  it  would 
depend,  upon  taking  the  account,  whether  the  sum  was  due  or  not 
from  one  partner  to  the  other.  But  in  this  case  I  think  there  is  not 
sufficient  evidence  of  partnership.  Conceding,  however,  that  there 
was  a  partnership,  the  debt  here  is  perfectly  distinct  from  any  part- 
nership accounts.  Although  Miss  Briggs  was  promised  an  eighth 
share  of  the  profits,  this  engagement  appears  to  have  been  made  after 
the  loan  of  the  money,  and  was  not  stipulated  for  by  her  previous  to 
the  advance  of  the  money.  The  money  was  to  be  repaid  at  all  events, 
and  there  is  nothing  to  show  that  it  was  intended  to  form  an  item  in 
any  partnership  accounts.  It  is  clear,  therefore,  that  there  was  no 
contemplation  of  a  partnership  between  these  parties,  but  that  the  real 
object  of  Miss  Briggs  was  to  obtain,  if  she  was  able,  more  interest 
than  is  per  cent. 

Sir  J.  Cross.  This  is  a  petition  of  the  bankrupt  to  supersede 
the  fiat,  on  the  ground  that  the  petitioning  creditor  was  his  partner 
in  trade.  But,  as  his  honor  the  Chief  Judge  has  already  stated,  there 
was  no  contemplation  of  any  partnership  in  fact.  It  is  true  that,  if 
B.  agrees  to  give  A.  a  share  in  the  profits  of  his  business,  the  court 
may  consider  them  quasi  partners  for  all  purposes  of  responsibility 
to  third  persons.  But  B.,  after  borrowing  money  of  A.,  cannot  turn 
round  upon  him  and  say,  "You  are  my  partner,  by  operation  of  law. 
and  therefore  I  will  not  pay  you  your  debt."  This  would  not  be  per- 
mitted by  any  court,  either  of  law  or  equity.  But,  even  if  there  was  a 
partnership  between  these  parties,  I  think  that  this  debt  was  independ- 
ent of  anv  partnership  transaction,  and  is  quite  sufficient  to  enable 
a  petitioning  creditor  to  sustain  a  fiat.  It  appears  to  me,  however, 
that  there  was  no  partnership  in  fact     ♦     *     * 

Petition  dismissed. 


4  WHAT  CONSTITUTES  A  PARTNERSHIP 

DURYEA  et  al.  v.  WHITCOMB. 
(Supreme  Court  of  Vermont,  1838.    31  Vt.  30o.) 

Book  account.  The  auditor  reported  that  on  the  20th  of  August, 
1854,  the  defendant,  the  plaintififs,  and  Isaac  B.  Lewis  made  an  agree- 
ment in  the  city  of  New  York,  where  both  the  plaintiffs  and  Lewis 
resided  and  were  engaged  in  the  purchase  and  sale  of  potatoes,  that 
the  defendant,  who  resided  in  Wells  River,  in  this  state,  should  pur- 
chase potatoes  during  that  season  in  Vermont  and  New  Hampshire, 
taking  the  advice  of  the  plaintiffs  and  Lewis,  from  time  to  time,  in 
regard  to  the  price,  amount,  and  market  of  such  purchases;  that  the 
defendant  was  to  devote  his  whole  time  to  this  business,  and  was  to 
have  6  cents  per  bushel  to  cover  the  expense  of  buying  and  carrying 
the  potatoes,  which  sum  of  C  cents  per  bushel  was  to  be  added  to  the 
cost  of  the  potatoes ;  that  if  it  should  become  necessary,  in  the  course 
of  such  purchases,  for  the  defendant  to  visit  other  parts  of  the  coun- 
try, the  expense  thereof  should  be  borne,  one-half  by  the  defendant, 
one-quarter  by  Lewis,  and  one-quarter  by  the  plaintiffs;  that  the  de- 
fendant was  to  send  the  potatoes  purchased  by  him  to  such  market 
as  he  should  think  best,  advising,  however,  on  this  subject,  with  Lewis 
and  the  plaintiffs;  that  all  the  potatoes  which  the  defendant  should 
purchase  and  send  to  New  York  were  to  be  taken  by  Lewis  or  the 
plaintiffs,  and  sold  at  the  highest  market  price  by  the  one  who  should 
receive  them,  such  party  charging  nothing  for  selling,  and  each  to  be 
accountable  for  their  own  sales;  that  if  the  defendant  chose  to  send 
any  of  the  potatoes  purchased  by  him  to  any  other  market  than  New 
York  he  should  be  accountable  for  the  amount  of  the  sales  thereof; 
that  all  the  expenses  of  transportation  of  the  potatoes  to  market  were 
to  be  paid  by  the  defendant,  and  added  to  the  general  cost  of  the  po- 
tatoes, and  at  the  close  of  the  season  the  profit  or  loss  on  all  the  potatoes 
purchased  by  the  defendant  were  to  be  apportioned  among  the  parties 
as  follows:  to  the  defendant  one-half,  to  the  plaintiffs  one-quarter, 
and  to  Lewis  one-quarter;  and  that,  if  the  defendant  at  any  time 
needed  more  funds  than  he  had  for  such  purchases,  he  might  draw  on 
Lewis,  or  on  the  plaintiffs,  in  such  a  manner  and  to  such  an  extent 
that  the  defendant  should  furnish  one-half  of  the  money  for  such  pur- 
chases, the  plaintiffs  one-quarter,  and  Lewis  one-quarter.  The  au- 
ditor further  reported  that  in  pursuance  of  this  agreement  potatoes 
were  purchased  by  Whitcomb  and  sent  to  market  and  sold  by  the  other 
parties,  and  that  upon  an  adjustment  of  the  claims  of  the  plaintiffs 
against  the  defendant,  arising  out  of  such  purchases  and  sales  (which 
were  the  only  matters  embraced  in  the  plaintiffs'  account),  including 
the  defendant's  share  of  a  loss  in  said  business,  computed  according 
to  the  terms  of  the  agreement,  he  found  that  the  defendant  was  in- 
debted to  the  plaintiffs  in  the  sum  of  $848.45.  The  auditor  further 
reported  that  at  the  time  the  above-mentioned  arrangement  was  made 


PARTNERSHIP  INTER  SE— TRUE  PARTNERSHIP  O 

nothing  was  said  between  the  parties  about  a  partnership,  and  the  au- 
ditor found  from  the  foregoing  facts  that  neither  of  the  parties  at  that 
time  supposed  they  were  forming  a  partnership  or  intended  to  form 
one.  The  defendant  insisted  before  the  auditor,  as  well  as  before  the 
county  court,  that  this  arrangement  constituted  a  partnership  between 
him,  the  plaintiffs,  and  Lewis,  and  claimed  that  the  affairs  of  such  part- 
nership could  not  be  adjusted  in  this  action.  But  the  county  court 
rendered  judgment  upon  the  report  for  the  plaintiffs  for  the  amount 
reported  by  the  auditor,  to  which  the  defendant  excepted. 

Alois,  J.*  As  this  is  a  case  where  the  rights  of  the  partners  inter 
se  merely  are  concerned,  where  no  question  as  to  third  persons  is  in- 
volved, the  criterion  to  determine  whether  the  contract  is  one  of  part- 
nership or  not  must  be :  What  did  the  parties  intend  by  the  contract 
.which  they  made  as  between  themselves  ? 

If  we  regard  the  agreement  itself,  as  set  forth  in  the  auditor's  re- 
port, it  is  clearly  a  partnership.     *     *     * 

The  parties  all  furnish  a  share  of  the  capital— Whitcomb  one-half, 
Lewis  one-quarter,  the  Duryeas  one-quarter.  They  jointly  own  the 
property  when  purchased.  It  is  purchased  in  order  to  be  sold  again 
for  their  joint  and  mutual  benefit,  thereby  negating  the  idea  of  sep- 
arate control  and  disposition  of  their  interests  in  the  property  pur- 
chased and  of  separate  interests  in  the  proceeds.  Each  is  to  share 
in  the  final  profit  or  loss.  At  the  close  of  the  season  the  profits  or 
losses  are  to  be  divided,  to  Whitcomb  one-half,  to  Lewis  a  quarter, 
to  the  plaintiffs  a  quarter.  Each  is  to  aid  in  selling,  and  to  contribute 
his  aid,  skill,  and  knowledge  to  get  the  highest  price.     *     *     ♦ 

The  fact  that  each  was  to  be  accountable  for  his  own  sales  amounts 
only  to  this:  That  each  should  sell  for  cash.  If  either  did  not,  he 
was  to  be  accountable  for  his  sale  as  cash.  The  proceeds  of  the  sales 
by  each  would  belong  to  them  jointly,  not  severally.  This  provision 
is  as  consistent  with  an  agreement  for  a  partnership  as  with  any  oth- 
er. Noyes  v.  Cushman,  25  Vt.  390.  So  that  Whitcomb  was  to  have 
the  control  of  the  potatoes,  and  to  run  them  to  the  best  market,  taking 
the  advice  of  Lewis  and  the  Duryeas  on  the  subject,  is,  w^hen  we  con- 
sider where  the  parties  resided,  where  the  potatoes  were  to  be  bought, 
and  to  what  markets  they  might  be  sent,  and  that  Whitcomb  w-as  to 
buy  them,  as  consistent  with  a  contract  of  partnership  as  with  any 
other. 

I.  This  agreement  does  not  belong  to  the  class  of  cases  where  the 
parties  are  jointly  interested  in  certain  proportions  in  the  property 
purchased,  but  not  in  the  final  profits  or  losses,  where  each  of  the 
part  owners  has  the  power  of  separate  disposition  of  his  interest.  Such 
is  the  case  of  Coope  v.  Eyre,  1  H.  Bl.  37,  a  leading  illustration  of  the 
class. 

II.  It  is  not  of  the  class  where  a  party  receives  a  portion  of  the 
profits  as  a  compensation  for  his  labor  as  an  agent  or  servant.    Each 

*  Part  of  the  opinion  is  omitted. 


6  WHAT  CONSTITUTES  A  PARTNERSHIP 

furnished  a  portion  of  the  capital.  Each  was  a  part  owner  of  the  prop- 
erty when  purchased,  and  of  the  proceeds  when  sold.  Neither  could 
be  said  to  be  the  servant  or  agent  of  the  other.  An  agent  who  re- 
ceives a  share  of  the  profits  as  a  compensation  for  his  services  is  not 
expected  to  share  in  losses.  If  there  are  no  profits,  he  loses  his  labor  or 
wages ;  but  he  loses  no  more,  though  there  are  further  losses  to  be 
borne  by  the  partners. 

Of  this  class  is  Kellogg  v.  Griswold,  12  Vt.  291,  and  Mason  v.  Pot- 
ter, 26  Vt.  722. 

III.  Nor  is  it  a  case  where  a  share  of  the  gross  or  net  earnings  is 
to  be  paid  as  a  compensation  for  the  use  of  capital,  or  as  rent,  and 
where  the  party  receiving  such  compensation  has  no  interest  in  the 
business,  the  property,  and  the  proceeds,  but  only  a  right  of  action 
against  the  other  parties.  Here  the  parties  jointly  contributed  capital, 
labor,  and  skill — were  joint  owners  of  the  property  from  the  time  of 
its  purchase  till  the  final  division  of  profits  or  loss.  No  severance  of 
their  interests  could  be  had.  No  ascertainment  of  their  respective 
shares  or  interests  could  be  made  till  a  final  accounting.  They  must 
have  relied  on  the  property  and  its  proceeds  to  secure  to  each  his  final 
share,  no  matter  by  whom  the  property  might  be  sold,  or  its  proceeds 
held. 

Hence  the  cases  of  Tobias  v.  Blin,  21  Vt.  544,  Bowman  et  al.  v. 
Bailey,  10  Vt.  170,  and  Ambler  v.  Bradley,  6  Vt.  119,  do  not  apply. 
Of  the  same  class  are  Denny  v.  Cabot,  6  Mete.  (Mass.)  92,  Holmes  v. 
R.  R.  Corp.,  5  Gray  (Mass.)  58,  Loomis  v.  Marshall,  12  Conn.  69,  30 
Am.  Dec.  596,  and  various  other  cases  cited  by  counsel. 

It  is  said,  however,  that  the  auditor  finds  that  the  parties  did  not  in- 
tend to  form  a  partnership,  and  that  such  intention  must  govern. 

It  is  with  contracts  of  partnership,  as  with  all  other  contracts,  that 
as  between  the  parties  to  them  their  intention  must  govern.  Hence 
an  express  stipulation  in  a  contract  that  the  parties  thereto  shall  not 
thereby  become  partners  is  binding  and  of  great  significance  in  giving 
construction  to  the  instrument,  especially  if  the  terms  are  doubtful, 
or  susceptible  of  more  than  one  meaning. 

1.  It  is  to  be  noted  that  in  this  case  there  was  no  such  express  stip- 
ulation. The  auditor's  report  says:  "At  the  time  of  the  arrangement 
in  New  York,  August  20,  1854,  nothing  was  said  about  a  partnership, 
and  neither  of  the  parties  at  that  time  supposed  they  were  forming  a 
partnership,  or  intended  to  form  a  partnership."  As  nothing  was  said 
about  a  partnership,  the  parties  could  not  have  stipulated  that  their 
contract  should  not  create  one. 

2.  The  report  states  what  was  the  arrangement  of  August  20,  1854. 
That  was  a  contract  for  a  partnership.  If  their  contract  was  for  a 
partnership  by  necessary  legal  construction  (which  we  have  found 
that  it  was),  and  they  intended  to  make  the  contract  (and  this  appears 
from  the  report),  the  legal  effect  of  their  contract  could  not  be  varied 
by  their  not  supposing  it  to  be  what  it  was.    The  further  statement  in 


PAfiTNERSniP  THE   RESULT   OF   INTENTION  7 

the  report  that  they  did  not  intend  to  form  a  partnership  seems  incon- 
sistent with  the  other  facts.  One  is  at  a  loss  to  perceive  how  the  au- 
ditor could  discover  such  an  intention,  when  nothinj^  was  said  ahout 
a  partnership,  and  when  the  contract  which  they  marie  was  a  partner- 
ship. Probably  the  fair  construction  of  the  report  is  that  the  partie3 
were  not  aware  of  the  legal  extent  and  obligation  of  the  contract  into 
which  they  entered. 

As  the  contract  imports  a  partnership,  we  must  hold,  in  the  absence 
of  any  express  stipulation  and  of  any  other  circumstances  to  show 
the  contrary,  that  they  intended  to  create  the  relation  which  the  con- 
tract expresses.    *    *    * 

The  result  is  that  the  judgrment  of  the  county  court  is  reversed,  and 
judgment  rendered  for  the  defendant  to  recover  his  costs. 


11.  Partnership  the  Result  of  Intention* 


PHILLIPS  V.  PHILLIPS. 

(Supreme  Court  of  Illinois,  1S63.     49  111.  437.) 

Caton,  C.  J.'  The  only  question  in  this  case  is  one  of  fact.  Was 
there  a  copartnership  between  John  Phillips  and  his  four  sons,  or 
was  he  the  sole  proprietor  of  the  business  about  which  the  contro- 
versy has  arisen?  It  must  be  remembered  in  the  outset  that  this  is  a 
controversy  inter  sese,  and  is  not  between  third  parties  and  the  alleged 
members  of  the  firm.  Parties  may  so  conduct  themselves  as  to  be 
liable  to  third  persons  as  partners  when  in  fact  no  partnership  exists 
as  between  themselves.  The  public  are  authorized  to  judge  from  ap- 
pearances and  professions,  and  are  not  absolutely  bound  to  know  the 
real  facts,  while  the  certain  truth  is  positively  known  to  the  alleged 
parties  of  a  firm.  A  partnership  can  only  exist  in  pursuance  of  an 
express  or  implied  agreement  to  which  the  minds  of  the  parties  have 
assented.  The  intention  or  even  belief  of  one  party  alone  cannot  create 
a  partnership  without  the  assent  of  the  others.  If  John  S.  Phillips 
designed  and  really  believed  that  there  was  a  partnership,  but  to 
which  his  father  and  brothers  never  assented,  and  in  the  existence 
of  which  they  did  not  believe,  then  there  was  no  partnership,  unless, 
indeed,  a  copartnership  could  be  formed  and  conducted  without  their 
knowledge  or  consent.     This  would  be  simplv  absurd.     We  cannot 

B  For  a  discussion  of  principlos,  see  GiUuore  on  Partnership,  §§  2,  3. 
«  Part  of  the  opinion  is  omitted. 


8  WHAT  CONSTITUTES  A   PARTNERSHIP 

in  this  way  surprise  them  into  a  partnership  of  which  they  never 
dreamed. 

Over  20  years  ago  John  Phillips  emigrated  from  Scotland  and  set- 
tled in  Chicago  with  his  family,  consisting  of  a  wife  and  four  sons 
and  two  daughters.  He  was  then  very  poor.  He  was  a  wood  turner 
by  trade,  and  commenced  that  business  in  a  very  small  way  with  a 
foot  lathe.  He  was  frugal,  industrious,  and  honest,  and  prospered  as 
but  few  men,  even  in  this  country,  prosper.  He  labored  hard  with  his 
own  hands,  and  as  his  sons  grew  up  they  joined  their  work  to  his, 
all  except  John  S.,  who  at  a  proper  age  was  put  as  an  apprentice  to 
learn  the  chair  maker's  trade;  but,  his  health  proving  delicate,  his 
father  made  an  arrangement  with  his  master  by  which  his  time  was 
released  when  he  had  but  partially  learned  his  trade,  when  John  S. 
returned  home  and  took  a  more  or  less  active  part  in  the  business  of 
his  father.  His  health  was,  however,  for  many  years  very  delicate, 
and  he  was  enabled  to  do  but  little  physical  labor.  He,  however,  most- 
ly took  charge  of  the  office  and  books,  for  which  the  testimony  shows 
he  was  very  well  qualified,  and  where  he  rendered  efficient  service. 
In  the  meantime  the  business  had  grown  from  the  smallest  beginning, 
with  a  single  foot  lathe,  to  a  large  manufactory,  with  extensive  ma- 
chinery propelled  by  steam ;  and  chair  making,  which  was  introduced 
at  an  early  day,  had  become  the  principal  or  largest  branch  of  the 
business.  Thus  this  business  was  begun  and  continued  and  prospered 
till  1860,  when  the  complainant  left  his  father  and  the  business,  and 
filed  this  bill  for  an  account  as  among  partners. 

The  business  had  always  been  conducted,  as  it  was  begun,  in  the 
name  of  John  Phillips,  the  father,  although  in  a  few  instances  bills 
were  made  out  to  John  Phillips  &  Sons  by  persons  with  but  a  super- 
ficial acquaintance  with  them,  which  were  paid  without  eliciting  re- 
mark or  particular  attention.  The  books  were  all  kept  in  the  name  of 
John  Phillips,  with  the  exception  of  a  few  entries  made  by  a  book- 
keeper in  the  name  of  John  Phillips  &  Sons.  Indeed,  there  is,  and  can 
be,  no  question  that,  if  there  was  a  copartnership  embracing  the 
father  and  sons,  the  firm  name  adopted  was  John  Phillips. 

The  complainant,  to  show  a  copartnership,  proves  that  the  sons  all 
devoted  their  time  and  attention  to  the  business  after  they  attained 
their  majority,  without  regular  salaries  as  laborers  or  servants;  that 
funds  which  they  drew  from  the  concern  for  their  support  were  charged 
to  each  one  separately,  while  neither  received  a  credit  for  labor  or  serv- 
ices; that  the  father,  upon  one  or  two  occasions,  stated  to  third  per- 
sons that  his  sons  were  interested  in  the  business ;  and  he  also  relies 
upon  the  appearances  to  the  outside  public  and  the  interest  which  all 
took  in  the  success  of  the  business. 

For  the  defense  it  is  claimed  that,  following  the  habits  and  customs 
of  their  forefathers  in  Scotland,  the  sons  continued  to  serve  the  father 
in  the  same  relation  and  with  the  same  fidelity  after  attaining  their 
majority  as  before,  under  the  distinct  and  often  declared  understand- 


PARTNERSHIP  THE    RESULT   OF   INTENTION  9 

ing  that  all  should  belong  to  the  father  during  his  life,  and  at  his  death 
the  business  and  property  should  be  left  by  him  to  his  chil'iren,  as  he 
should  think  proper.  *  *  ♦  jf  such  was  the  understanding  and  pur- 
pose of  the  parties,  then  there  was  no  partnership.  Originally,  undoubt- 
edly, the  entire  concern  belonged  to  the  father,  and  it  so  continued, 
unless  by  the  agreement  of  the  father  the  sons  were  admitted  into  the 
concern  as  partners ;  for,  as  before  intimated,  we  know  of  no  means 
by  which  the  sons  could  become  partners  with  the  father,  and  thus  ac- 
quire a  title  to  his  property,  without  his  knowledge  or  consent.  Did 
the  father  ever  consent  that  his  sons,  or  either  of  them,  should  be  ad- 
mitted as  partners  with  him?  Did  he  ever  agree  that  they  should  be 
part  owners  of  this  property?  On  repeated  occasions  the  subject  of 
a  copartnership  with  his  sons  was  presented  to  him,  both  in  the  pres- 
ence of  the  complainant  and  his  brothers,  and  he  ever  repudiated  the 
suggestion  in  the  most  emphatic  terms.  The  very  suggestion,  even, 
seemed  to  excite  his  indignation.  Upon  one  occasion  he  expressed 
himself  in  this  characteristic  phrase:  "Na,  na!  I  will  ha'  nae  sons 
for  partners  as  long  as  I  live.  Damn  them !  they  would  put  me  out 
of  the  door."  On  none  of  these  occasions  do  we  find  the  complainant, 
or  any  of  his  brothers,  claiming  the  existence  of  a  copartnership;  but, 
on  the  contrary,  they  silently  acquiesced  in  the  assertions  of  the  father. 
*  ♦  *  Had  there  been  ever  any  agreement,  expressed  or  implied, 
that  there  should  be  a  partnership,  they,  as  parties  to  it,  must  have 
been  aware  of  it.  If  not  expressed  in  words,  there  must  have  been 
at  least  the  mental  intention  and  tacit  understanding  on  the  part  of 
the  father  that  they  should  be  admitted  as  partners,  and  on  their  part 
to  assume  the  benefits  and  liabilities  of  partners,  and  this  could  not  be 
without  their  knowledge.  Others  might  be  deceived  by  appearances. 
Others,  ignorant  of  the  customs  and  traditions  of  their  forefathers, 
which  are  so  fondly  cherished  by  emigrants  from  the  old  country,  and 
particularly  from  Scotland,  might  draw  erroneous  conclusions  as  to 
the  true  relation  existing  between  them  as  a  family,  by  seeing  men  in 
middle  life  zealously  bending  their  energies  under  the  guidance  of  their 
father  to  the  promotion  of  the  success  of  the  business.  Whoever 
should  apply  customs  prevalent  among  native  Americans  to  this  state 
of  facts  would  unhesitatingly  conclude  that  all  were  in  partnership. 
And  so,  no  doubt,  many  were  deceived ;  nor  was  it  deemed  neces- 
sary by  any  of  the  parties,  on  all  occasions,  to  undeceive  them  by  a 
full  explanation  of  this  family  arrangement. 

But  the  question  here  is,  what  was  the  actual  fact?  and  not  what 
observers  supposed  was  the  fact  from  appearances.  It  is  the  internal 
truth  we  are  seeking,  and  these  external  appearances  are  only  im- 
portant as  they  may  enable  us  to  arrive  at  this  truth ;  and  when  we 
so  find  the  truth  by  indubitable  proof  in  a  different  direction  than  that 
indicated  by  these  external  appearances,  then  these  must  go  for 
naught.    Here  we  have  the  positive  testimony  of  every  living  man  who 


10  WHAT  CONSTITUTES  A   PARTNERSHIP 

has  the  absolute  knowledge  of  the   facts,  incUiding  the  complainant 
himself,  all  testifying  most  unqualifiedly  that  there  was  no  partner- 
ship.    *     *     * 
Decree  is  reversed,  and  the  bill  dismissed. 


IIL  Partnership  by  Operation  of  Law — Partnership  as  to  Third 

Parties ' 


GRACE  V.  SMITH. 

(Court  of  Common  Pleas,   1775.     2  W.   Bl.  998.) 

De  Grey,  C.  J.,  reported :  That  this  was  an  action  brought  against 
Smith  alone  as  a  secret  partner  with  one  Robinson  (vide  Abbot  and 
Smith),  to  whom  the  goods  were  delivered,  and  who  became  bank- 
rupt in  1770.  That  on  the  30th  of  March,  1767,  Smith  and  Robinson 
entered  into  partnership  for  seven  years,  but  in  the  November  after- 
wards, some  disputes  arising,  they  agreed  to  dissolve  the  partnership. 
The  articles  were  not  canceled,  but  the  dissolution  was  open  and  no- 
torious, and  was  notified  to  the  public  on  the  17th  of   November, 

1767.  The  terms  of  the  dissolution  were  that  all  the  stock  in  trade 
and  debts  due  to  the  partnership  should  be  carried  to  the  account  of 
Robinson  only ;  that  Smith  was  to  have  back  i4,200,  which  he  brought 
into  the  trade,  and  il,000  for  the  profits  then  accrued  since  the  com- 
mencement of  the  partnership;  that  Smith  was  to  lend  Robinson  i4,- 
000,  part  of  this  £5,200,  or  let  it  remain  in  his  hands  for  seven  years, 
at  5  per  cent,  interest  and  an  annuity  of  iSOO  per  annum  for  the  same 
seven  years — for  all  of  which  Robinson  gave  bond  to  Smith.    In  June, 

1768,  Robinson  advanced  to  Smith  £600  for  two  years'  payment  of  the 
annuity  and  other  sums  by  way  of  interest  and  gratuities,  and  other 
large  sums  at  different  times,  to  enable  him  to  pay  the  partnership 
debts;  Smith  having  agreed  to  receive  all  that  was  due  to  the  part- 
nership, and  to  pay  its  debts,  but  at  the  hazard  of  Robinson.  That  on 
the  1st  of  August,  1768,  the  demands  of  Smith  were  all  liquidated  and 
consolidated  into  one,  viz.,  £5,200  due  to  him  on  the  dissolution  of  the 
partnership,  £1,500  for  the  remaining  five  years  of  the  annuity,  and 
£300  for  Smith's  share  of  a  ship,  in  all,  £7,000,  for  which  Robinson 
gave  a  bond  to  Smith.  That  on  the  22d  of  August,  1769,  an  assign- 
ment was  made  of  all  Robinson's  effects  to  secure  the  balance  then  due 
to  Smith,  which  was  stated  to  be  £10,000.  Soon  after  the  commission 
was  awarded. 

7  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  4-d. 


AS  TO   THIRD   PARTIES  11 

Davy,  for  the  plaintiff,  insisted  that  the  agreement  between  Rob- 
inson and  Smith  was  either  a  secret  continuance  of  the  old  partner- 
ship or  a  secret  commencement  of  a  new  one,  being  for  the  retiring 
partner  to  leave  his  money  in  the  visible  partner's  hands,  in  order  to 
carry  on  his  trade,  and  to  receive  for  it  12i/o  per  cent,  profit,  which 
could  not  fairly  be  done,  unless  it  be  understood  to  arise  from  the  prof- 
its of  the  trade,  and  that  he  ought  therefore  to  be  considered  as  a  se- 
cret partner;  and  he  relied  much  on  a  case  of  Bloxham  and  Fourdri- 
nier  v.  Pell  and  Brooke,  tried  at  the  same  sittings  (7th  of  March  1T75), 
before  Lord  Mansfield  in  the  King's  Bench,  as  in  point.  "This  was 
also  a  partnership  for  seven  years  between  Brooke  and  Pell,  but  at 
the  end  of  one  year  agreed  to  be  dissolved,  but  no  express  dissolution 
was  had.  The  agreement  recited  that,  Brooke  being  desirous  to  have 
the  profits  of  the  trade  to  himself  and  Pell  being  desirous  to  relinquish 
his  right  to  the  trade  and  profits,  it  was  agreed  that  Brooke  should 
give  Pell  a  bond  for  i2,485,  which  Pell  had  brought  into  the  trade, 
with  interest  at  5  per  cent.,  which  was  accordingly  done.  And  it  was 
further  agreed  that  Brooke  should  pay  to  Pell  £200  per  annum  for  six 
years,  if  Brooke  so  long  lived,  as  in  lieu  of  the  profits  of  the  trade; 
and  Brooke  covenants  that  Pell  should  have  free  liberty  to  inspect 
his  books.  Brooke  became  a  bankrupt  before  anything  w^as  paid  to 
Pell.  And,  this  action  being  brought  for  a  debt  incurred  by  Brooke 
in  the  course  of  trade.  Lord  Mansfield  held  that  Pell  was  a  secret 
partner.  This  was  a  device  to  make  more  than  legal  interest  of  mon- 
ey, and,  if  it  was  not  a  partnership,  it  w-as  a  crime.  And  it  shall  not 
lie  in  the  defendant  Pell's  mouth  to  say:  'It  is  usury,  and  not  a  part- 
nership.' " 

Grose  and  Adair,  for  the  defendant,  argued  that  the  present 
case  is  very  distinguishable  from  that  of  Bloxham  v.  Pell.  Pell  was 
to  be  paid  out  of  the  profits  of  the  trade,  as  appears  from  the  cove- 
nant to  inspect  the  books,  which  else  would  be  useless.  His  annuity 
was  expressly  given  as  and  in  lieu  of  those  profits.  It  was  contingent 
in  another  view,  as  it  depended  on  the  life  of  Brooke,  by  whom 
those  profits  were  to  be  made.  In  our  case  the  annuity  is  certain,  not 
casual.  It  does  not  depend  on  carrying  on  the  trade,  nor  to  cease 
when  that  is  left  ofiF,  but  is  due  out  of  the  estate  of  Robinson.  It  is 
not  a  necessary  dilemma,  but  it  must  be  either  usury  or  partnership. 
It  may  be,  and  probably  was,  a  premium  for  the  good  will  of  the  trade. 
Two  thousand  guineas  is  no  uncommon  price  for  turning  over  the 
profits  of  a  trade  so  beneficial  that  it  appears  to  have  been  rated  at 
£1,000  to  each  partner  in  the  space  of  less  than  eight  months.  Aiid 
whether  that  sum  is  agreed  to  be  paid  at  once,  or  by  seven  installments, 
it  is  the  same  thing.  Besides,  whether  there  be  or  be  not  a  secret 
constructive  partnership  is  a  question  proper  for  a  jury,  who  have  de- 
cided it  on  consideration  of  all  the  circumstances. 

De  Grey,  C.  J.  The  only  question  is,  what  constitutes  a  secret  part- 
ner? Every  man  who  has  a  share  of  the  profits  of  a  trade  ought  al- 
so to  bear  his  share  of  the  loss.    And  if  any  one  takes  part  of  the  prof- 


12  WHAT  CONSTITUTES  A  PARTNERSHIP 

it,  he  takes  a  part  of  that  fund  on  which  the  creditor  of  the  trader 
rehes  for  his  payment.  If  any  one  advances  or  lends  money  to  a 
trader,  it  is  only  lent  on  his  general  personal  security.  It  is  no  spe- 
cific lien  upon  the  profits  of  the  trade,  and  yet  the  lender  is  generally 
interested  in  those  profits.  He  relies  on  them  for  repayment.  And 
there  is  no  difference  whether  that  money  be  lent  de  novo  or  left  be- 
hind in  trade  by  one  of  the  partners,  who  retires.  And  whether  the 
terms  of  that  loan  be  kind  or  harsh  makes  also  no  manner  of  differ- 
ence. I  think  the  true  criterion  is  to  inquire  whether  Smith  agreed  to 
share  the  profits  of  the  trade  with  Robinson,  or  whether  he  only  re- 
Hed  on  those  profits  as  a  fund  of  payment;  a  distinction  not  more 
nice  than  usually  occurs  in  questions  of  trade  or  usury.  The  jury 
have  said  this  is  not  payable  out  of  the  profits;  and  I  think  there  is 
no  foundation  for  granting  a  new  trial. 

Gould,  Blackstone,  and  NarES,  JJ.,  concurred.* 

Rule  discharged. 


WAUGH  V.  CARVER  et  al. 
(Court  of  Common  Pleas,  1793.     2  H.  Bl.  235.) 

Assumpsit  by  Waugh  against  Erasmus  Carver,  William  Carver, 
and  Archibald  Giesler,  as  partners,  for  goods  sold  and  delivered  by  the 
plaintiff  to  Giesler  at  his  agency  at  Cowes.  The  Carvers  denied  a 
partnership  with  Giesler.  Verdict  for  plaintiff,  subject  to  the  opinion 
of  the  court  on  a  case  stated. 

The  Carvers  were  engaged  in  the  business  of  shipping  agents  at  Gos- 
port,  and  Giesler  was  engaged  in  a  similar  business  at  Plymouth. 
These  parties  entered  into  a  written  agreement  in  substance  as  fol- 
lows :  The  said  Giesler  will  remove  from  Plymouth  and  establish  him- 
self at  Cowes  for  the  purpose  of  carrying  on  a  house  there  in  the 
agency  line  on  his  own  account;  but,  in  consequence  of  the  assistance 
and  recommendations  which  the  Carvers  have  agreed  to  render  in 
support  of  the  agency  at  Cowes,  Giesler  agrees  to  pay  to  the  Carvers 
one-half  of  the  commission  or  agency  to  be  received  on  all  the  ships 
or  vessels  as  may  arrive  or  put  into  the  port  at  Cowes,  or  remain  in 
the  road  to  the  westward  thereof,  of  which  the  said  Giesler  may  pro- 
cure the  address,  and  likewise  one-half  of  the  discount  on  the  bills  of 
several  tradesmen  employed  in  the  repairs  of  such  ships  or  vessels.  Gies- 
ler will  also  consult  and  advise  with  the  Carvers  respecting  ships  or  ves- 
sels, and  pursue  such  measures  as  may  be  for  the  best  interest  of  all 
concerned,  and  will  facilitate  the  procuring  by  the  Carvers  of  ware- 
house facilities  at  Cowes.  And  the  said  Carvers,  for  the  considera- 
tions hereinbefore  mentioned,  agree  to  pay  to  Giesler  three-fifths  of 

8  Concurring  opinion  of  Blaclistone,  J.,  is  omitted. 


AS  TO   THIRD   PARTIES  13 

the  commissions  to  be  received  by  them  on  account  of  certain  vessels 
proceeding  from  Cowes  to  Portsmouth  and  vessels  stopping  at  Ports- 
mouth, and  11/2  per  cent,  on  the  amount  of  bills  of  tradesmen  em- 
ployed in  the  repairs  of  such  vessels,  and  certain  percentage  of  charg- 
es received  for  warehouse  facilities  furnished  by  the  Carvers  to  ves- 
sels unloading  at  Cowes;  and  also  the  said  Carvers  and  Giesler  will 
meet  yearly  for  the  purpose  of  examining  and  settling  their  accounts 
concerning  the  commission  business,  and  that  such  party  from  whom 
the  balance  shall  then  appear  to  be  due  shall  pay  the  same  to  the  other 
party  on  such  settlement. 

And  it  is  hereby  likewise  covenanted,  declared,  and  agreed,  by  and 
between  the  said  Erasmus  Carver  and  William  Carver  and  the  said 
Archibald  Giesler,  that  each  party  shall  separately  run  the  risk  of  anrl 
sustain  all  such  loss  and  losses  as  may  happen  on  the  advance  of  mon- 
eys in  respect  of  any  ships  or  vessels  under  the  immediate  care  of  ei- 
ther of  the  said  parties,  respectively;  it  being  the  true  intent  and 
meaning  of  these  presents,  and  of  the  parties  hereunto,  that  neither  of 
them,  the  said  Erasmus  Carver  and  William  Carver  and  Archibald 
Giesler  shall,  at  any  time  or  limes  during  the  continuance  of  this  agree- 
ment, be  in  any  wise  injured,  prejudiced,  or  affected  by  any  loss  or 
losses  that  may  happen  to  the  other  of  them,  or  that  either  of  them 
shall  in  any  degree  be  answerable  or  accountable  for  the  acts,  deeds. 
or  receipts  of  the  other  of  them,  but  that  each  of  them,  the  said  Eras- 
mus Carver  and  William  Carver  and  Archibald  Giesler,  shall,  in  his 
own  person  and  with  his  own  goods  and  effects,  respectively  be  an- 
swerable and  accountable  for  his  losses,  acts,  deeds,  and  receipts. 

And  it  is  hereby  further  covenanted,  declared,  and  agreed  by  and 
between  the  said  Erasmus  Carver  and  William  Carver  and  Archibald 
Giesler  that  these  presents  do  not,  nor  shall  be  construed  to,  mean  to 
extend  to  such  ships  or  vessels  that  may  come  to  the  address  of  ei- 
ther of  the  said  parties,  respectively,  for  the  purpose  of  loading  or 
delivering  any  goods,  wares,  or  merchandise ;  it  being  the  true  intent 
and  meaning  of  these  presents,  and  the  parties  hereunto,  that  the  fore- 
going articles  shall  not,  nor  shall  be  construed  to,  bear  reference  to 
their  particular  or  separate  mercantile  concerns  or  connections.® 

Lord  Chief  Justice  Evre.  This  case  has  been  extremely  well  ar- 
gued, and  the  discussion  of  it  has  enabled  me  to  make  up  my  mind, 
and  removed  the  only  difficulty  I  felt,  which  was  whether,  by  constru- 
ing this  to  be  a  partnership,  we  should  not  determine  that  if  there 
was  an  annuity  granted  out  of  a  banking  house  to  the  widow,  for  in- 
stance, of  a  deceased  partner,  it  would  make  her  lialile  to  the  debts  of 
the  house  and  involve  her  in  a  bankruptcy.  But  I  think  this  case  will 
not  lead  to  that  consequence. 

The  definition  of  a  partnership  cited  from  Puffendorf  is  good  as 
between  the  parties  themselves,  but  not  with  respect  to  the  world  at 
large.     If  the  question  were  between  A.  and  B.  whether  they  were 

»  Statement  of  facts  is  rewritten. 


14  WHAT  CONSTITUTES  A  PARTNERSHIP 

partners  or  not,  it  would  be  very  well  to  inquire  whether  they  had 
contributed,  and  in  what  proportions,  stock,  or  labor,  and  on  what 
agreements  they  were  to  divide  the  profits  of  that  contribution.  But 
in  all  these  cases  a  very  different  question  arises,  in  which  the  defini- 
tion is  of  little  service.  The  question  is,  generally,  not  between  the 
parties  as  to  what  shares  they  shall  divide,  but  respecting  creditors 
claiming  a  satisfaction  out  of  the  funds  of  a  particular  house,  who 
shall  be  deemed  liable  in  regard  to  these  funds.  Now,  a  case  may  be 
stated  in  which  it  is  the  clear  sense  of  the  parties  to  the  contract  that 
they  shall  not  be  partners ;  that  A.  is  to  contribute  neither  labor  nor 
money,  and,  to  go  still  further,  not  to  receive  any  profits.  But,  if  he 
will  lend  his  name  as  a  partner,  he  becomes,  as  against  all  the  rest  of 
the  world,  a  partner,  not  upon  the  ground  of  the  real  transaction  be- 
tween them,  but  upon  principles  of  general  policy,  to  prevent  the  frauds 
to  which  creditors  would  be  liable  if  they  were  to  suppose  that  they 
lent  their  money  upon  the  apparent  credit  of  three  or  four  persons, 
when  in  fact  they  lent  it  only  to  two  of  them,  to  whom,  without  the 
others,  they  would  have  lent  nothing.  The  argument  gone  into,  how- 
ever proper  for  the  discussion  of  the  question,  is  irrelevant  to  a  great 
part  of  the  case.  Whether  these  persons  were  to  interfere  more  or 
less  with  their  advice  and  directions,  and  many  small  parts  of  the 
agreement,  I  lay  entirely  out  of  the  case,  because  it  is  plain  upon  the 
construction  of  the  agreement,  if  it  be  construed  only  between  the 
Carvers  and  Giesler,  that  they  were  not,  nor  ever  meant  to  be  part- 
ners. They  meant  each  house  to  carry  on  trade  without  risk  of  each 
other,  and  to  be  at  their  own  loss.  Though  there  was  a  certain 
degree  of  control  at  one  house,  it  was  without  an  idea  that  either 
was  to  be  involved  in  the  consequences  of  the  failure  of  the 
other,  and  without  understanding  themselves  responsible  for  any 
circumstances  that  might  happen  to  the  loss  of  either.  That  was  the 
argeement  between  themselves.  But  the  question  is  whether  they  have 
not,  by  parts  of  their  agreement,  constituted  themselves  partners  in 
respect  to  other  persons.  The  case,  therefore,  is  reduced  to  the  single 
point  whether  the  Carvers  did  not  entitle  themselves,  and  did  not 
mean,  to  take  a  moiety  of  the  profits  of  Giesler's  house,  generally  and 
indefinitely  as  they  should  arise,  at  certain  times  agreed  upon  for  the 
settlement  of  their  accounts.  That  they  have  so  done  is  clear  upon  the 
face  of  the  agreement;  and  upon  the  authority  of  Grace  v.  Smith  he 
who  takes  a  moiety  of  all  the  profits  indefinitely  shall,  by  operation  of 
law,  be  made  liable  to  losses,  if  losses  arise,  upon  the  principle  that,  by 
taking  a  part  of  the  profits,  he  takes  from  the  creditors  a  part  of  that 
fund  which  is  the  proper  security  to  them  for  the  payment  of  their 
debts.  That  was  the  foundation  of  the  decision  in  Grace  v. 
Smith,  and  I  think  it  stands  upon  the  fair  ground  of  reason.  I  cannot 
agree  that  this  was  a  mere  agency  in  the  sense  contended  for  on  the 
part  of  the  defendants,  for  there  was  a  risk  of  profit  and  loss.  A  ship 
agent  employs  tradesmen  to   furnish  necessaries   for  the  ship.     He 


AS  TO    THIRD   PARTIES  15- 

contracts  with  them  and  is  liable  to  them.  He  also  makes  out  tlicir 
bills  in  such  a  way  as  to  determine  the  charge  of  commission  to  tiie 
shipowners.  With  respect  to  the  commission,  indeed,  he  may  be  con- 
sidered as  a  mere  agent;  but  as  to  the  agency  itself  he  is  as  much  a 
trader  as  any  other  man,  and  there  is  as  much  risk  of  profit  and  loss, 
to  the  person  with  whom  he  contracts,  in  the  transactions  with  him, 
as  with  any  other  trader.  It  is  true  he  will  gain  nothing  but  his  dis- 
count ;  but  that  is  a  profit  in  the  trade,  and  there  may  be  losses  to  him, 
as  well  as  to  the  owners.  If,  therefore,  the  principle  be  true  that  he 
who  takes  the  general  profits  of  a  partnership  must  of  necessity  be  made 
liable  to  the  losses,  in  order  that  he  may  stand  in  a  just  situation 
with  regard  to  the  creditors  of  the  house,  then  this  is  a  case  clear  of 
all  difficulty.  For  though  with  respect  to  each  other  these  persons 
were  not  to  be  considered  as  partners,  yet  they  have  made  themselves 
such,  with  regard  to  their  transactions  with  the  rest  of  the  world.  I 
am  therefore  of  opinion  that  there  ought  to  be  judgment  for  the  plain- 
tiff. 

Gould  and  Heath,  JJ.,   concurred.     Rooke,  J.,  gave  no   opin- 
ion. 


1.  Exceptions 


WILKINSON  V.  FRASIER. 

(Court  of  Common  Pleas,  1803.    4  Esp.  182.) 

Assumpsit  against  the  defendant,  who  was  the  captain  of  a  ship 
employed  in  the  southern  whale  fishery,  to  recover  seamen's  wages. 
The  action  was  brought,  and  the  plaintitT  declared  on  the  usual  articles 
for  voyages  on  that  fishery,  by  which  the  seamen  are,  by  their  articles, 
to  receive  a  certain  share  of  the  produce  of  the  cargo  in  lieu  of  wages. 
The  plaintiff  proved  the  articles,  which  were  signed  by  the  plaintiflF, 
as  a  mariner,  and  by  the  defendant  as  captain ;  the  sailing  of  the  vessel 
on  the  voyage  and  the  plaintiff's  service;  and  that  the  oil,  of  which 
the  cargo  was  composed,  had  been  sold,  and  produced  a  certain  sum. 
for  the  share  of  which  the  plaintiff  went.  These  articles  stipulated, 
on  the  part  of  the  sailors,  that  they  should  proceed  on  the  voyage, 
do  their  duty,  &c. ;  and  on  the  part  of  the  captain,  that  the  produce 
of  the  voyage  should  be  divided  in  certain  proportions, — viz..  a  cer- 
tain proportion  to  the  owners,  a  certain  proportion  to  the  captain,  and 
the  rest  to  the  other  officers  and  seamen.  The  proportion  of  a  com- 
mon sailor  was  a  one  hundred  and  ninetieth  part. 

Best,  Serjt.,  objected,  that  the  action  could  not  be  maintained 
against  the  captain,  who  was  the  present  defendant,  because  the  de- 


16  WHAT  CONSTITUTES  A  PARTNERSHIP 

fendant,  as  well  as  the  plaintiff,  was  to  be  paid  out  of  the  profits  of 
the  voyage;  that  they  were  therefore  partners;  and  as  one  partner 
could  not  maintain  this  action  against  another,  the  action  was  not 
maintainable. 

Lord  Alvanley  said  he  would  not  nonsuit  the  plaintiff  on  such  an 
objection;  that  the  plaintiff  and  the  other  sailors  were  hired  by  the 
defendant  and  the  owners,  to  serve  on  board  the  ship  for  wages  to 
be  paid  to  him ;  and  the  share  was  in  the  nature  of  wages,  unliquidat- 
ed at  the  time,  but  capable  of  being  reduced  to  a  certainty  on  the  sale 
of  the  oil,  which  had  taken  place ;  and  that  he  should  not  therefore 
consider  them  as  partners,  but  as  entitled  to  wages  to  the  extent  of 
their  proportion  in  the  produce  of  the  voyage. 

There  was  a  verdict  for  the  defendant. 


LEGGETT  et  al.  v.  HYDE  et  al. 
(Court  of  Appeals  of  New  York,  1874.     58  N.  Y.  272,  17  Am.  Rep.  244.) 

Appeal  by  defendant  George  M.  Hyde  from  judgment  of  the  Gen- 
eral Term  of  the  Supreme  Court  in  the  Second  Judicial  Department, 
affirming  a  judgment  in  favor  of  plaintiffs  entered  upon  a  verdict, 
and  affirming  order  denying  motion  for  a  new  trial.  This  action  was 
brought  against  defendants,  who  were  alleged  to  be  members  of  the 
firm  of  A.  D.  Putnam  &  Co.,  to  recover  for  goods  sold  and  delivered 
to  that  firm.  Defendant  Hyde  denied  that  he  was  a  partner.  At  the 
close  of  the  evidence  the  counsel  for  defendant  Hyde  asked  the  court 
to  direct  a  verdict  in  his  favor,  which  was  denied.  The  court,  upon  re- 
quest of  plaintiffs'  counsel,  directed  a  verdict  in  favor  of  plaintiffs,  to 
which  defendant's  counsel  excepted.  A  verdict  was  rendered  accord- 
ingly. 

FoLGER,  J.^°  At  the  trial  each  party  asked  the  court  to  direct  a  ver- 
dict in  his  favor.  Each  thereby  conceded  that  there  could  be  no  dis- 
pute upon  any  question  of  fact.  Each  thereby  conceded  that  there 
was  left  for  decision  only  a  question  of  law,  and  that  it  arose  upon  a 
settled  and  uncontradicted  state  of  facts. 

Taking  the  view  of  the  testimony  the  most  favorable  for  the  appel- 
lant, the  facts  are  these:  In  18G9  one  Putnam  and  one  Henneberger 
were  partners  in  business,  under  the  firm  name  of  A.  D.  Putnam  & 
Co.  In  that  year  the  appellant  invested  or  deposited  with  that  firm 
$1,500.  This  sum  was  credited  on  its  books  to  Fredk.  Hyde,  the  son  of 
the  appellant.  For  this  sum  the  appellant  was  to  share  in  the  profits 
of  the  business  of  the  firm.  His  share  was  to  be  one-third,  and  de- 
mandable  by  him  at  the  end  of  the  year.  At  the  end  of  the  year  his 
share  of  the  profits  was  $oOO.    This  sum  was  also  placed  to  the  credit 

10  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  abridged. 


AS   TO   THIRD    PARTIES 


17 


of  Fredk.  Hyde.  Then,  in  1870,  the  appellant  loaned  to  the  firm  for 
one  year  the  original  sum  of  $l,r)00  and  the  $500  of  profits,  thus  mak- 
ing $2,000.  In  the  consideration  of  this  loan  the  firm  agreed  to  hire 
Fredk.  Hyde  as  clerk,  at  $10  per  week,  for  the  year ;  to  pay  the  ap- 
pellant one-third  of  the  profits,  which  were  to  be  settled  half-yearly; 
and,  at  the  end  of  the  year,  to  take  him  in  as  a  partner,  if  the  firm  and 
he  should  feel  satisfied,  on  his  making  further  investments  and  putting 
in  more  capital.  Though  it  is  nowhere  in  the  testimony  so  stated  in 
terms,  yet  it  is  fairly  to  be  inferred  that  the  $2,000  was  loaned  to  be 
used  in  the  business,  and  that  if  at  the  end  of  the  year  the  appellant 
did  not  become  an  ostensible  partner  he  was  to  be  repaid,  out  of  the 
concern,  the  $2,000,  but  without  interest,  strictly  as  such.  The  appel- 
lant never  interfered  in  the  affairs  of  the  concern,  nor  exercised  any 
control  in  the  business.  At  the  end  of  the  first  six  months  there  were 
no  profits  of  the  business.  The  appellant  never  received  anything  for 
his  $2,000,  nor  anything  by  way  of  interest  money. 

The  prominent  and  important  facts  are  that  he  loaned  the  firm  a 
sum  of  money  to  be  employed  as  capital  in  its  business,  and  that  there- 
for he  was  entitled  to  have  and  demand  from  it  one-third  of  the  prof- 
its of  its  business  every  half  year.  In  my  judgment  there  results  from 
this  that  Putnam  and  Henneberger,  making  use  of  that  money  as 
capital  in  that  business,  used  it  there  for  the  benefit  of  the  appellant, 
because  any  return  to  him,  for  the  loan  to  them,  must  come  from  the 
use  of  it.  If  not  used  so  that  profits  were  made,  he  got  no  return. 
Further:  That  he  had  an  interest  in  the  profits,  which,  while  they 
were  anticipatory,  was  indefinite  as  to  amount,  but,  when  they  were 
realized,  was  measured  and  specific  as  to  share.  Further:  That  his 
interest  in  them  was  in  them  as  profits :  that  is,  that  he  had  a  right 
on  the  lapse  of  every  six  months,  though  having  no  property  in  the 
whole  capital,  to  have  an  account  taken  of  the  business,  and  a  division 
made  of  the  profits  then  appearing.  Ex  parte  Hamper,  17  Vesey, 
403.  So  it  is  said  in  Everett  v.  Coe,  5  Denio,  182 :  "If  he  is  to  be  paid 
out  of  profits  made,  then  he  has  a  direct  interest  in  them.  And 
see  Ogden  v.  Astor,  4  Sandf.  321,  322.  That  he  had  this  right  to  an 
account  and  a  division  at  other  time  than  at  the  end  of  each  six  months, 
if  at  any  other  time  the  exigencies  of  the  concern,  as  the  dissolution 
of  the  firm  by  death  of  one  partner,  or  other  reason,  required  an  ac- 
count to  be  taken.  He  had  that  interest  in  the  profits,  as  profits,  be- 
cause he  could  claim  a  share  of  them  specifically,  as  they  should  ap- 
pear on  each  six  months,  or  other  accounting  of  the  business  of  the 
term  then  ended,  and  could  then  have  and  demand  payment  of  his 
share.  By  the  terms  of  his  contract  with  the  firm,  if  it  be  upheld 
as  made,  he  was  interested  in  and  affected  by  the  results  only  of  Uie 
year,  as  ascertained  at  the  end  of  each  six  months.  It  would  not  affect 
him  in  the  right  to  account,  though  the  business  of  a  previous 
year  had  been  disastrous.  If  either  six  months'  business  should 
Gilm.Paki. — 2 


18  WHAT  CONSTITUTES  A  PARTNERSHIP 

yield  a  profit,  he  could  insist  on  payment  to  him  of  one-third  thereof, 
and  could  demand  that  an  account  be  had  of  the  business  of  any  six 
months  to  ascertain  if  there  had  been  profit.  It  was  one-third  of  the 
profits  that  he  was  to  have,  and  not  a  sum  in  general  equal  to  that 
one-third.  So  that  he  was  to  take  it  as  profits,  and  not  as  an  amount 
due;  not  as  a  measure  of  compensation,  but  as  a  result  of  the  cap- 
ital and  industry. 

The  learned  counsel  for  the  appellant  states  the  question  of  law 
to  be  this :  Does  a  loan  of  money,  with  an  agreement  for  compensa- 
tion from  the  profits  of  the  business,  per  se  constitute  the  lender  a 
partner  quoad  the  creditors  of  the  firm?  Is  this  statement  of  it  cor- 
rect? Does  the  phrase  "compensation  from  the  profits"  fully  meet 
case?  Does  it  fully  present  the  fact  that  by  the  agreement  the  ap- 
pellant obtains  an  interest  in  the  profits  as  such,  and  a  right  to  in- 
sist upon  an  accounting,  and  a  division  thereof  half-yearly?  With 
this  supplement,  the  question  for  decision  is  as  stated  by  him.  I 
am  not  to  say  what  I  think  ought  to  be  the  answer  to  it,  was  this  a 
case  of  first  impression.  I  am  to  declare  what  I  ascertain  to  be  the 
answer  already  given  by  the  law  in  this  state,  as  it  has  been  settled 
and  declared  by  the  authorities.  The  argument  of  the  learned  coun- 
sel is  very  ingenious,  and  very  forcible  when  considered  in  refer- 
ence to  what  should  be  the  proper  rule,  and  what  the  true  reasons 
upon  which  a  rule  should  be  founded.  Yet,  if  it  is  found  that  by  a 
long  course  of  decisions,  or  by  long  acquiescence  in  and  adherence 
to,  a  rule  some  time  ago  authoritatively  promulgated,  there  has  been 
established  a  principle  of  commercial  law  upon  which  the  community 
has  acted,  it  is  the  duty  of  the  courts  to  adhere  thereto,  leaving  it 
to  the  lawmaking  power  to  find  a  remedy,  if  remedy  be  needed,  in  a 
positive  alterative  enactment.  In  England  this  had  been  done,  and  by 
an  act  of  Parliament  an  important  change  has  been  made.  St.  28 
&  29  Vict.  c.  86. 

In  the  first  place,  it  matters  not  that  the  defendants  meant  not  to 
be  partners  at  all,  and  were  not  partners  inter  sese.  They  may  be 
partners  as  to  third  persons  notwithstanding.  Manhattan  Brass  Co. 
V.  Sears,  45  N.  Y.  797,  6  Am.  Rep.  177.  And  this  effect  may  result, 
though  they  should  have  taken  pains  to  stipulate  among  themselves 
that  they  will  not,  in  any  event,  hold  the  relation  of  partners.  Among 
the  reasons  given  is  this,  whether  it  be  strong  or  weak :  That  what- 
ever person  shares  in  the  profits  of  any  concern  shall  be  liable  to 
creditors  for  losses  also,  since  he  takes  a  part  of  the  fund,  which  in 
great  measure  is  the  creditors'  security  for  the  payment  of  the  debts 
to  them.     Waugh  v.  Carver,  2  H.  Bl.  235,  citing  Grace  v.  Smith,  2 

W.  Bl.  998.  The  doctrine  took  its  rise  in  the  decisions  in  these  cases. 
And  commenting  upon  them,  the  text-writers,  who  have  presented 
most  forcible  criticisms  upon  it,  say:  "The  principle  laid  down  by 
De  Grey,  C.  J.,  in  Grace  v.  Smith,  has  served  as  the  foundation  of 


AS   TO   THIRD    PARTIES  19 

a  long  line  of  decisions  which  cannot  now  be  overruled  by  any  au- 
thority short  of  that  of  the  Legislature.  *  *  *  And  in  all  cases 
in  which  there  is  no  incorporation,  nor  limited  liability,  it  must  still 
be  regarded  as  binding  on  the  courts."  Lindley  on  Part.  *3G.  "The 
doctrine  is  completely  established  upon  the  very  ground  asserted  in 
Grace  v.  Smith."  Story  on  Part.  §  36,  note  3.  And  so  Mr.  T.  Par- 
sons, in  his  book  on  Partnership,  quoting  Lord  Eldon,  Ex  parte 
Hamper:  "But  if  he  has  a  specific  interest  in  the  profits  themselves, 
as  profits,  he  is  a  partner" — adds:  "Undoubtedly  he  is.  Every  prin- 
ciple of  the  law  of  partnership  leads  to  this  conclusion."  He  con- 
tends, however,  that  the  specific  interest  in  profits  which  is  to  make 
a  person  a  partner  must  be  a  proprietary  interest  in  them,  existing 
before  the  division  of  them  into  shares.  See,  also,  3  Kent's  Commen- 
taries, *25,  note  "b,"  where  it  is  said:  "The  test  of  partnership  is 
a  community  of  profit;  a  specific  interest  in  the  profits,  as  profits, 
in  contradistinction  to  a  stipulated  portion  of  the  profits  as  a  com- 
pensation for  services."  The  courts  of  this  state  have  always  ad- 
hered to  this  doctrine  and  applied  or  recognized  it  in  the  cases  com- 
ing before  them.     *     *     * 

It  is  not  too  much  to  say,  that  the  limited  partnership  act,  1  Rev. 
St.  (1st  Ed.)  p.  764,  pt.  2,  c.  4,  tit.  1,  is  a  legislative  and  practical 
recognition  of  this  rule  of  commercial  law.  Indeed,  if  it  shall  be 
held  that  such  a  contract  as  that  of  the  appellant  does  not  make  him 
a  partner  as  to  third  persons,  there  is  little  or  no  need  of  that  act. 
The  situation  of  the  special  partner  is  more  onerous  than  that  of 
the  appellant  under  such  a  ruling.  The  first  may  lose  his  capital 
invested,  as  well  as  profits,  by  the  same  being  absorbed  in  the  pay- 
ment to  creditors.  The  latter  may  lose  his  anticipated  compensation 
for  his  money  loaned ;  but  his  position  is  quite  as  favorable  to  him 
as  that  occupied  by  creditors  for  the  recovery  of  his  money  advanced. 
Neither  may  interfere,  to  transact  business,  or  to  sign  for  the  firm, 
or  to  bind  the  same.  Both  may  advise  as  to  the  management.  Both 
may  examine  into  the  state  and  progress  of  the  partnership  concerns — 
the  special  partner,  from  time  to  time;  the  appellant,  at  the  end  of 
every  six  months.  In  one  respect  the  special  partner  is  better  placed. 
He  may  stipulate  for  legal  interest  on  his  capital  invested,  as  well 
as  for  a  portion  of  the  profits.  The  appellant,  if  he  bargained  for 
profits  in  addition  to  interest,  might  be  in  conflict  with  the  usury  act. 
It  is  evident  that  most  of  the  conveniences  and  advantages  of  the 
limited  partnership  act,  and  some  which  it  does  not  give,  might  be 
obtained  by  a  loan  of  money,  with  a  stipulation  for  compensation  for 
its  use  by  a  share  of  the  profits,  if  thereby  a  partnership  is  not  created 
as  to  third  persons.  This  is  not  decisive  as  to  what  the  law  is;  but 
it  is  strongly  indicative  of  the  view  of  the  law  held  by  the  revisers  and 
by  the  Legislature. 

There  have  been  from  time  to  time  certain  exceptions  established 
to  this  rule  in  a  broad  statement  of  it;    but  the  decisions  by  which 


20  WHAT  CONSTITUTES  A  PARTNERSHIP 

these  exceptions  have  been  set  up  still  recognize  the  rule  that,  where 
one  is  interested  in  profits  as  such,  he  is  a  partner  as  to  third  persons. 
These  exceptions  deal  with  the  case  of  an  agent,  servant,  factor, 
broker,  or  employe,  who,  with  no  interest  in  the  capital  or  business, 
is  to  be  remunerated  for  his  services  by  a  compensation  from  the 
profits,  or  by  a  compensation  measured  by  the  profits ;  or  with  that 
of  seamen,  on  whaling  or  other  like  voyages,  whose  reimbursement 
for  their  time  and  labor  is  to  finally  depend  upon  the  result  of  the 
whole  voyage.  There  are  other  exceptions,  like  tenants  of  land,  or  a 
ferry,  or  an  inn,  who  are  to  share  with  the  owners  in  results,  as  a 
means  of  compensation  for  their  labor  and  services.  The  decisions 
which  establish  these  exceptions  do  not  profess  to  abrogate  the  rule — 
only  to  limit  it. 

It  is  claimed  by  the  learned  counsel  for  the  appellant  that  the  rule 
as  announced  in  Grace  v.  Smith  and  Waugh  v.  Carver  has  been  ex- 
ploded, and  another  rule  propounded  which  shields  the  appellant.  He 
is  correct  so  far  as  the  courts  in  England  are  concerned.  Cox  v. 
Hickman,  8  H.  of  L.  C.  268,  9  C.  B.  N.  S.  (99  E.  C.  L.)  47,  and  Bul- 
len  v.  Sharp,  L.  R.  1  Com.  PI.  86,  affirm  that  while  a  participation 
in  the  profits  is  cogent  evidence  that  the  trade  in  which  the  profits 
were  made  was  carried  on  in  part  for  or  in  behalf  of  the  person  claim- 
ing the  right  to  participate,  yet  that  the  true  ground  of  liability  is 
that  it  has  been  carried  on  by  persons  acting  in  his  behalf.  Those 
cases  were  very  peculiar  in  their  circumstances.  After  the  judg- 
ments rendered  in  them,  the  Parliament  deemed  it  needful  to  enact 
that  the  advance  of  money  by  way  of  loan  to  a  person  in  trade  for 
a  share  of  the  profits  should  not,  of  itself,  make  the  lender  responsible 
as  a  partner.  St.  28  &  29  Vict.  c.  86,  as  cited  in  Parsons  on  Partri. 
*92,  note  "t."  If  the  decisions  in  the  cases  cited  went  as  far  as  is 
claimed,  it  would  seem  that  the  act  was  supererogatory.  It  is  sug- 
gested, however,  by  Kelly,  C.  B.,  in  Holme  v.  Hammond,  L.  R.  7 
Exch.  218,  that  the  effect  of  the  statute  is  that  the  sharing  in  the 
profits  by  a  lender  shall  be  no  evidence  at  all  of  a  partnership.  At 
all  events,  those  decisions  have  been  accepted  in  England  as  settling 
the  rule  as  above  stated.  See  case  last  cited  and  cases  therein  refer- 
red to. 

Without  discussing  those  decisions  and  determining  just  how  far 
they  reach,  it  is  sufficient  to  say  that  they  are  not  controlling  here, 
that  the  rule  remains  in  this  state  as  it  has  long  been,  and  that  we 
should  be  governed  by  it  until  here,  as  in  England,  the  Legislature 
shall  see  fit  to  abrogate  it. 

The  references  upon  the  appellant's  points  do  not  show  that  the 
courts  of  this  state  have  yet  exploded  the  rule  I  have  stated.  I  have 
consulted  all  the  authorities  cited  (save  a  few  of  which  I  had  not 
the  books,  or  as  to  which  there  was  a  miscitation),  and  I  do  not  find 
that  the  rule  is  questioned,  further  than  to  apply  to  the  facts  of  the 


A8   TO   THIRD   PARTIES  21 

particular  case  some  one  or  more  of  the  exceptions  to  the  rule  which 
I  have  stated  to  exist. 

I  am  of  the  opinion  that  the  judgment  appealed  from  should  be 
affirmed,  with  costs. 

Church,  C.  J.,  dissents. 


IV.  Doctrine  of  Partnership   as  to   Third   Parties   OverthrowTi " 


COX  AND  WHEATCROFT  v.  HICKMAN. 
(House  of  Lords,  ISCO.    8  H.  L.  Cas.  268.) 

B.  and  J.  T.  Smith,  as  partners  under  the  name  of  B.  Smith  & 
Son,  were  engaged  in  business  as  iron  masters  and  corn  merchants. 
Becoming  financially  embarrassed,  a  meeting  of  creditors  was  held 
and  a  deed  of  assignment  executed  by  the  Smiths,  as  parties  of  the 
first  part,  certain  of  the  creditors,  as  trustees,  of  the  second  part, 
and  the  general  scheduled  creditors,  among  whom  were  the  trustees, 
of  the  third  part.  The  deed  assigned  the  property  of  the  partnership 
to  trustees,  and  empowered  them  to  carry  on  the  business  under  the 
name  of  the  Stanton  Iron  Company;  to  execute  all  contracts  and  in- 
struments necessary  to  carry  it  on;  to  divide  the  net  income  derived 
among  the  creditors  ratably  (such  income  to  be  deemed  the  property 
of  the  assignors),  with  the  power  to  the  majority  of  the  creditors, 
assembled  at  a  meeting;  to  make  rules  for  conducting  the  business, 
or  to  put  an  end  to  it  altogether;  and,  after  the  debts  had  been  dis- 
charged, the  property  was  to  be  reconveyed  to  the  Smiths.  Cox  and 
Wheatcroft  were  named  among  the  trustees.  Cox  never  acted. 
Wheatcroft,  after  acting  for  six  months,  resigned.  Afterwards  the 
other  trustees,  who  continued  the  business,  became  indebted  to  Hick- 
man for  goods  supplied  to  the  company,  and  gave  him  bills  of  ex- 
change, accepted  by  themselves:  "Per  proc.  The  Stanton  Iron  Com- 
pany."   This  was  an  action  on  the  bills  of  exchange  thus  given. 

The  cause  was  tried  in  1856,  before  tlie  late  Lord  Chief  Justice 
Jervis,  when  a  verdict  was  found  for  the  defendants;  but  on  motion 
on  leave  reserved  the  verdict  was  entered  for  the  plaintiff.  18  C.  B. 
617.  The  case  was  taken  to  the  Exchequer  Chamber,  when  three 
judges  (Justices  Coleridge,  Erie,  and  Crompton)  were  for  affirming 
the  judgment  of  the  Common  Pleas,  and  three  other  judges  (Barons 
Martin,  Bramwell,  and  Watson)  were  for  reversing  it.  3  C.  B.  (N. 
S.)  523.  The  judgment,  therefore,  stood,  and  was  afterwards  brought 
up  to  this  House. 

11  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  7. 


22  WHAT  CONSTITUTES  A  PARTNERSHIP 

The  judges  were  summoned,  and  Lord  Chief  Baron  Pollock,  Mr. 
Justice  Wightman,  Mr.  Justice  Williams,  Mr,  Justice  Crompton,  Mr. 
Baron  Channell,  and  Mr.  Justice  Blackburn,  attended.  [The  opinions 
of  the  judges  summoned  are  omitted.] 

Lord  Cr.'\nworth.^2  In  this  case  the  judges  in  the  Court  of  Exche- 
quer Chamber  were  equally  divided,  and  unfortunately  the  same  dif- 
ference of  opinion  has  existed  among  the  learned  judges  who  attend- 
ed this  House  during  the  argument  at  your  Lordships'  bar.  Except, 
therefore,  from  an  examination  of  the  grounds  on  which  their  opin- 
ions are  founded,  we  can  derive  no  benefit  in  this  case  from  their  as- 
sistance. We  cannot  say  that  in  the  opinions  delivered  in  this  House 
there  is  more  authority  in  favor  of  one  view  of  the  case  than  of  the 
other.  We  must  not,  however,  infer  that  your  Lordships  have  not 
derived  material  aid  from  the  opinions  expressed  by  the  judges.  These 
opinions  have  stated  the  arguments  on  the  one  side  and  the  other 
with  great  clearness  and  force,  and  what  we  have  to  do  now  is  to 
decide  between  them. 

In  the  first  place  let  me  say  that  I  concur  with  those  of  the  learned 
judges  who  are  of  opinion  that  no  solid  distinction  exists  between  the 
liability  of  either  defendant  in  an  action  on  the  bills  and  in  an  action  for 
goods  sold  and  delivered.  If  he  would  have  been  liable  in  an  action 
for  goods  sold  and  delivered,  it  must  be  because  those  who  were  in 
fact  carrying  on  the  business  of  the  Stanton  Iron  Company  were  car- 
rying it  on  as  his  partners  or  agents ;  and,  as  the  bills  were  accepted, 
according  to  the  usual  course  of  business,  for  ore  supplied  by  the 
plaintiff,  I  cannot  doubt  that,  if  the  trade  was  carried  on  by  those 
who  managed  it  as  partners  or  agents  of  the  defendant,  he  must  be 
just  as  liable  on  the  bills  as  he  would  have  been  in  an  action  for  the 
price  of  the  goods  supplied.  His  partners  or  agents  would  have  the 
same  authority  to  accept  bills  in  the  ordinary  course  of  trade  as  to 
purchase  goods  on  credit. 

The  liability  of  one  partner  for  the  acts  of  his  copartner  is  in  truth 
the  Hability  of  a  principal  for  the  acts  of  his  agent.  Where  two  or 
more  persons  are  engaged  as  partners  in  an  ordinary  trade,  each  of 
them  has  an  implied  authority  from  the  others  to  bind  all  by  contracts 
entered  into  according  to  the  usual  course  of  business  in  that  trade. 
Every  partner  in  trade  is,  for  the  ordinary  purposes  of  the  trade, 
the  agent  of  his  copartners,  and  all  are  therefore  liable  for  the  or- 
dinary trade  contracts  of  the  others.  Partners  may  stipulate  among 
themselves  that  some  one  of  them  only  shall  enter  into  particular  con- 
tracts, or  into  any  contracts,  or  that  as  to  certain  of  their  contracts 
none  shall  be  liable  except  those  by  whom  they  are  actually  made; 
but  with  such  private  arrangements  third  persons,  dealing  with  the 
firm  without  notice,  have  no  concern.  The  public  have  a  right  to 
assume  that  every  partner  has  authority  from  his  copartner  to  bind 

»«  Part  of  the  opinion  of  Lord  Cranworth  and  all  of  the  opinion  of  Lord 
Weasleydale  are  omitted  and  the  statement  of  facts  is  rewritten. 


AS   TO   THIRD   PARTIES  23 

the  whole  firm  in  contracts  made  according  to  the  ordinary  usages 
of  trade. 

This  principle  applies,  not  only  to  persons  acting  openly  and  avow- 
edly as  partners,  but  to  others  who,  tliough  not  so  acting,  are  by  se- 
cret or  private  agreement  partners  with  those  who  appear  ostensibly 
to  the  world  as  the  persons  carrying  on  the  business. 

In  the  case  now  before  the  House,  the  Court  of  Common  Pleas  de- 
cided in  favor  of  the  respondent  that  the  appellant,  by  his  execution 
of  the  deed  of  arrangement,  became,  together  with  the  other  creditors 
who  executed  it,  a  partner  with  those  who  conducted  the  business  of 
the  Stanton  Iron  Company.  The  judges  in  the  Court  of  Exchequer 
Chamber  were  equally  divided,  so  that  the  judgment  of  the  Court  of 
Common  Pleas  was  affirmed.  The  sole  question  for  adjudication  by 
your  Lordships  is  whether  this  judgment  thus  affirmed  was  right. 

I  do  not  propose  to  consider  in  detail  all  the  provisions  of  the  deed. 
I  think  it  sufficient  to  state  them  generally.  In  the  first  place  there 
is  an  assignment  by  Messrs.  Smith  to  certain  trustees  of  the  mines 
and  all  the  engines  and  machinery  used  for  working  them,  together 
with  all  the  stock  in  trade,  and  in  fact  all  their  property,  upon  trust 
to  carry  on  the  business  and,  after  paying  its  expenses,  to  divide  the 
net  income  ratably  amongst  the  creditors  of  Messrs.  Smith,  as  often 
as  there  shall  be  funds  in  hand  sufficient  to  pay  one  shilling  in  the 
pound,  and,  after  all  the  creditors  are  satisfied,  then  in  trust  for 
Messrs.  Smith. 

Up  to  this  point  the  creditors,  though  they  executed  the  deed,  are 
merely  passive;  and  the  first  question  is,  what  would  have  been  the 
consequence  to  them  of  their  executing  the  deed  if  the  trusts  had 
ended  there?  Would  they  have  become  partners  in  the  concern 
carried  on  by  the  trustees  merely  because  they  passively  assented  to 
its  being  carried  on  upon  the  terms  that  the  net  income — i.  e.,  the 
net  profits — should  be  applied  in  discharge  of  their  demands?  I  think 
not.  It  was  argued  that,  as  they  would  be  interested  in  the  profits, 
therefore  they  would  be  partners.  But  this  is  a  fallacy.  It  is  often 
said  that  the  test,  or  one  of  the  tests,  whether  a  person  not  ostensibly 
a  partner  is  nevertheless  in  contemplation  of  law  a  partner  is  whether 
he  is  entitled  to  participate  in  the  profits.  This,  no  doubt,  is  in  gen- 
eral a  sufficiently  accurate  test;  for  a  right  to  participate  in  profits 
affords  cogent,  often  conclusive,  evidence  that  the  trade  in  which  the 
profits  have  been  made  was  carried  on  in  part  for  or  on  behalf  of  the 
person  setting  up  such  a  claim.  But  the  real  ground  of  the  liability 
is  that  the  trade  has  been  carried  on  by  persons  acting  on  his  behalf. 
When  that  is  the  case,  he  is  Uable  to  the  trade  obligations,  and  entitled 
to  its  profits,  or  to  a  share  of  them.  It  is  not  strictly  correct  to  say 
that  his  right  to  share  in  the  profits  makes  him  liable  to  the  debts 
of  the  trade.  The  correct  mode  of  stating  the  proposition  is  to  say 
that  the  same  thing  which  entitles  him  to  the  one  makes  him  liable 
to  the  other,  namely,  the  fact  that  the  trade  has  been  carried  on  on 


24  WHAT  CONSTITUTES  A  PARTNERSHIP 

his  behalf;  i.  e.,  that  he  stood  in  the  relation  of  principal  towards  the 
persons  acting  ostensibly  as  the  traders  by  whom  the  liabilities  have 
been  incurred,  and  under  whose  management  the  profits  have  been 
made. 

Taking  this  to  be  the  ground  of  liability  as  a  partner,  it  seems  to 
me  to  follow  that  the  mere  concurrence  of  creditors  in  an  arrange- 
ment under  which  they  permit  their  debtor,  or  trustees  for  their  debtor, 
to  continue  his  trade,  applying  the  profits  in  discharge  of  their  de- 
mands, does  not  make  them  partners  with  their  debtors  or  the  trustees. 
The  debtor  is  still  the  person  solely  interested  in  the  profits,  save  only 
that  he  has  mortgaged  them  to  his  creditors.  He  receives  the  benefit 
of  the  profits  as  they  accrue,  though  he  has  precluded  himself  from 
applying  them  to  any  other  purpose  than  the  discharge  of  his  debts. 
The  trade  is  not  carried  on  by  or  on  account  of  the  creditors,  though 
their  consent  is  necessary  in  such  a  case,  for  without  it  all  the  prop- 
erty might  be  seized  by  them  in  execution.  But  the  trade  still  remains 
the  trade  of  the  debtor  or  his  trustees.  The  debtor  or  the  trustees 
are  the  persons  by  or  on  behalf  of  whom  it  is  carried  on, 

I  have  hitherto  considered  the  case  as  it  would  have  stood  if  the 
creditors  had  been  merely  passively  assenting  parties  to  the  carrying 
on  of  the  trade,  on  the  terms  that  the  profits  should  be  applied  in  liq- 
uidation of  their  demands.  But  I  am  aware  that  in  this  deed  special 
powers  are  given  to  the  creditors,  which,  it  was  said,  showed  that 
they  had  become  partners,  even  if  that  had  not  been  the  consequence 
of  their  concurrence  in  the  previous  trust.  The  powers  may  be  de- 
scribed briefly  as,  first,  a  power  of  determining  by  a  majority  in  value 
of  their  body  that  the  trade  should  be  discontinued,  or,  if  not  discon- 
tinued, then,  secondly,  a  power  of  making  rules  and  orders  as  to  its 
conduct  and  management. 

These  powers  do  not  appear  to  me  to  alter  the  case.  The  creditors 
might,  by  process  of  law,  have  obtained  possession  of  the  whole  prop- 
erty. By  the  earlier  provisions  of  the  deed  they  consented  to  abandon 
that  right,  and  to  allow  the  trade  to  be  carried  on  by  the  trustees. 
The  effect  of  these  powers  is  only  to  qualify  their  consent.  They 
stipulate  for  a  right  to  withdraw  it  altogether,  or,  if  not,  then  to  im- 
pose terms  as  to  the  mode  in  which  the  trusts  to  which  they  had  agreed 
should  be  executed.  I  do  not  think  that  this  alters  the  legal  condition 
of  the  creditors.  The  trade  did  not  become  a  trade  carried  on  for  them 
as  principals,  because  they  might  have  insisted  on  taking  possession 
of  the  stock,  and  so  compelling  the  abandonment  of  the  trade,  or  be- 
cause they  might  have  prescribed  terms  on  which  alone  it  should  be 
continued.  Any  trustee  might  have  refused  to  act  if  he  considered 
the  terms  prescribed  by  the  auditors  to  be  objectionable.  Suppose  the 
deed  had  stipulated,  not  that  the  creditors  might  order  the  discontin- 
uance of  the  trade,  or  impose  terms  as  to  its  management,  but  that 
some  third  person  might  do  so,  if,  on  inspecting  the  accounts,  he  should 
deem  it  advisable.     It  could  not  be  contended  that  this  would  make 


TESTS   OF   INTENTION — IN   GENERAL  25 

the  creditors  partners,  if  they  were  not  so  already ;  and  I  can  see 
no  difiference  between  stipulating  for  such  a  power  to  be  reserved  to 
a  third  person  and  reserving  it  to  themselves. 

I  have,  on  these  grounds,  come  to  the  conclusion  that  the  creditors 
did  not,  by  executing  this  deed,  make  themselves  partners  in  the  Stan- 
ton Iron  Company,  and  I  must  add  that  a  contrary  decision  would 
be  much  to  be  deprecated.  Deeds  of  arrangement,  like  that  now  be- 
fore us,  are,  I  believe,  of  frequent  occurrence;  and  it  is  impossible  to 
imagine  that  creditors  who  execute  them  have  any  notion  that  by  so 
doing  they  are  making  themselves  liable  as  partners.  This  would  be 
no  reason  for  holding  them  not  to  be  liable,  if,  on  strict  principles  of 
mercantile  law,  they  are  so;  but  the  very  fact  that  such  deeds  are 
so  common,  and  that  no  such  liability  is  supposed  to  attach  to  them 
affords  some  argument  in  favour  of  the  appellant.  The  deed  now 
before  us  was  executed  by  above  a  hundred  joint  creditors;  and  a 
mere  glance  at  their  names  is  sufficient  to  show  that  there  was  no 
intention  on  their  part  of  doing  anything  which  should  involve  them 
in  the  obligations  of  a  partnership.  I  do  not  rely  on  this;  but,  at 
least,  it  shows  the  general  opinion  of  the  mercantile  world  on  the  sub- 
ject. I  may  remark  that  one  of  the  creditors,  I  see,  is  the  Midland 
Railway  Company,  which  is  a  creditor  for  a  sum  only  of  £39,  and  to 
suppose  that  the  directors  could  imagine  that  they  were  making  them- 
selves partners  is  absurd. 

The  authorities  cited  in  argument  did  not  throw  much  light  upon 
the  subject.  I  can  find  no  case  in  which  a  person  has  been  made  liable 
as  a  dormant  or  sleeping  partner,  where  the  trade  might  not  fairly 
be  said  to  have  been  carried  on  for  him,  together  with  those  ostensibly 
conducting  it,  and  when,  therefore,  he  would  stand  in  the  position  of 
principal  towards  the  ostensible  members  of  the  firm  as  his  agents. 
This  was  certainly  the  case  in  Waugh  v.  Carver,  2  H.  Bl.  235.    *    *    * 

None  of  the  other  cases  cited  carried  the  doctrine  farther  than 
those  I  have  referred  to,  and  I  therefore  think  that  in  this  case  the 
judgment  appealed  against  ought  to  be  reversed. 


V.  Tests  of  Intention — In  General  ^' 


BEECHER  et  al.  v.  BUSH  et  al 

(Supreme  Court  of  Michigan,  18S1.    45  Mich.  1S8,  7  N.  W.  785.  40  Am.  Rep. 

4Go.) 

CooLEY,  J.^*    The  purpose  of  the  action  in  the  court  below  was  to 
charge  Beecher  as  partner  with  Williams  for  a  bill  of  supplies  pur- 

18  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  8. 
i<  Part  of  the  opinion  is  omitted. 


26  WHAT  CONSTITUTES  A  PARTNERSHIP 

chased  for  the  Biddle  House  in  Detroit.  Beecher  was  owner  of  the 
Bidd'le  House,  and  Williams  proposed  in  writing  to  "hire  the  use" 
of  it  from  day  to  day,  and  open  and  keep  it  as  a  hotel.  Beecher  ac- 
cepted his  proposals  and  Williams  went  into  the  house  and  began 
business,  and  in  the  course  of  the  business  made  this  purchase.  The 
proposals  are  set  out  in  full  in  the  special  verdict.  The  question 
is  whether  by  accepting  the  proposals  Beecher  made  himself  a  partner 
with  Williams  in  the  hotel  business ;  and  this  is  to  be  determined 
on  the  face  of  the  writing  itself.  It  is  conceded  that  Beecher  was 
never  held  out  to  the  public  as  a  partner,  and  that  the  bill  of  supplies 
was  purchased  on  the  sole  credit  of  Williams  and  charged  to  him  on 
the  books  of  the  plaintiffs  below.  The  case,  therefore,  is  in  no  way 
embarrassed  by  any  questions  of  estoppel,  for  Beecher  has  done  nothing 
and  suffered  nothing  to  be  done  which  can  preclude  him  from  standing 
upon  his  exact  legal  rights  as  the  contract  fixed  them. 

Nor  do  we  understand  it  to  be  claimed  that  the  parties  intended  to 
form  a  partnership  in  the  hotel  business,  or  that  they  supposed  they 
had  done  so,  or  that  either  has  ever  claimed  as  against  the  other  the 
rights  of  a  partner.  It  is  perfectly  clear  that  many  things  which 
are  commonly  incident  to  a  partnership  these  parties  meant  should 
be  wholly  excluded  from  their  arrangement.  Some  of  these  were  of 
primary  importance.  It  is  plain,  for  example,  that  Beecher  did  not 
understand  that  his  credit  was  to  be  in  any  way  involved  in  the  busi- 
ness, or  that  he  was  to  have  any  interest  in  the  supplies  that  should 
be  bought,  or  any  privilege  to  decide  upon  them,  or  any  legal  control 
whatever  until  proceeds  were  to  be  divided,  or  any  liability  to  losses 
if  losses  were  suffered.  These  are  among  the  common  incidents  to 
a  partnership;  and  while  some  of  them,  and  possibly  all  of  them,  may 
not  be  necessary  incidents,  yet  the  absence  of  all  is  very  conclusive 
that  the  parties  had  no  purpose  whatever  to  form  a  partnership,  or 
to  give  to  each  other  the  rights  and  powers,  and  subject  each  other 
to  the  obligations  of  partners.  In  general  this  should  be  conclusive. 
If  parties  intend  no  partnership  the  courts  should  give  effect  to  their 
intent  unless  somebody  has  been  deceived  by  their  acting  or  assuming 
to  act  as  partners;  and  any  such  case  must  stand  upon  its  peculiar 
facts  and  upon  special  equities.     *     *     * 

We  have  then  a  case  in  which  the  party  it  is  sought  to  charge  has 
not  held  himself  out,  or  suffered  himself  to  be  held  out  as  a  partner 
either  to  the  public  at  large  or  to  the  plaintiff,  and  has  not  intended 
to  form  that  relation.  He  is  not  therefore  a  partner  by  estoppel  nor 
by  intent;  and  if  he  is  one  at  all,  it  must  be  by  construction  of  law. 
What,  then,  are  the  indicia  of  partnership  in  this  case — the  marks 
which  force  that  construction  upon  the  court  irrespective  of  the  in- 
tent of  the  parties,  that  in  fact  control  their  intent  and  give  to  the 
parties  bringing  suit  rights  which  they  were  not  aware  of  when 
they  sold  the  supplies?  In  the  elaborate  and  able  brief  which  has 
been  presented  in  behalf  of  the  defendants  in  error  it  is  conceded  that 
the  fact  that  Beecher  was  to  receive  each  day  a  sum  "equal  to  one- 


TESTS   OF   INTENTION — IN   GENERAL  27 

third  of  the  gross  receipts  and  gross  earninc^s"  for  the  day  would  not 
necessarily  make  him  a  partner.  What  is  claimed  is  that  the  fact  is 
"cogent  evidence"  that  Beccher  was  to  participate  in  the  results  of 
the  business  in  a  manner  that  indicated  he  was  a  principal  in  it,  and 
was  not  receiving  compensation  for  the  use  of  property  merely.  The 
view  of  the  law  here  suggested  is  undoubtedly  correct.  There  may 
be  a  participation  in  the  gross  returns  that  would  make  the  receiver 
a  partner,  and  there  may  be  one  that  would  not.  The  question  is  in 
what  capacity  is  participation  had.  Gross  returns  are  not  profits  and 
may  be  large  when  there  are  no  profits,  but  it  cannot  be  predicated  of 
either  gross  returns  or  profits  that  the  right  to  participate  is  con- 
clusive evidence  of  partnership.  This  is  settled  law  both  in  England 
and  in  this  country  at  this  time,  as  is  fully  shown  by  the  authorities 
cited  for  the  defendants  in  error.  It  was  recognized  in  Hinman  v. 
Littell,  23  Mich.  484;  and  in  New  York,  where  the  doctrine  that  partic- 
ipation in  profits  proves  partnership  has  been  adhered  to  most  close- 
ly, it  is  admitted  there  are  exceptions.    Eager  v.  Crawford,  7G  N.  Y.  97. 

But  we  quite  agree  with  counsel  for  defendants  in  error  that  no 
case  ought  to  turn  upon  the  unimportant  and  mere  verbal  distinction 
between  the  statement  in  the  papers  that  Beecher  was  to  have  a  sum 
"equal  to"  one-third  of  the  gross  receipts  and  gross  earnings,  and  a 
statement  that  he  was  to  have  one-third  of  these  receipts  and  earn- 
ings. It  is  perfectly  manifest  it  was  intended  he  should  have  one-third 
of  them;  that  they  should  be  apportional  to  him  regularly  and  daily, 
and  not  that  Williams  was  to  appropriate  the  whole  and  pay  a  sum 
"equal  to"  Beecher's  proportion  when  it  should  be  convenient.  We 
can  conceive  of  cases  where  the  difference  in  phraseology  might  be 
important,  because  it  might  give  some  insight  into  the  real  intent  and 
purpose  of  the  parties,  and  throw  light  upon  the  question  whether 
that  which  was  to  be  received,  was  to  be  received  as  partner  or  only 
by  way  of  compensation  for  something  supplied  to  the  other,  but  the 
intent  in  this  case  is  too  manifest  to  be  put  aside  by  any  mere  ingenuity 
in  the  use  of  words.  Loomis  v.  Marsliall,  12  Conn.  69,  79,  30  Am. 
Dec.  596.     [The  court,  after  examining  numerous  cases,  continues:] 

It  is  needless  to  cite  other  cases.  They  cannot  all  be  reconciled,  but 
enough  are  cited  to  show  that  in  so  far  as  the  notion  ever  took  hold 
of  the  judicial  mind  that  the  question  of  partnership  or  no  partnership 
was  to  be  settled  by  arbitrary  tests  it  was  erroneous  and  mischievous 
and  the  proper  correction  has  been  applied.  Except  when  one  allows 
the  public  or  individual  dealers  to  be  deceived  by  the  appearances  of 
partnership  when  none  exists,  he  is  never  to  be  charged  a«5  a  partner  un- 
less by  contract  and  with  intent  he  has  formed  a  relation  in  which  the 
elements  of  partnership  are  to  be  found.  And  what  are  these?  At 
the  very  least  the  following:  Community  of  interest  in  some  lawful 
commerce  or  business,  for  the  conduct  of  which  the  parties  eventually 
are  principals  of  and  agents  for  each  other,  with  general  powers  with- 
in the  scope  of  the  business,  which  powers  however  by  agreement  be- 


28  WHAT  CONSTITUTES  A   PARTNERSHIP 

tween  the  parties  themselves  may  be  restricted  at  option,  to  the  ex- 
tent even  of  making  one  the  sole  agent  of  the  others  and  of  the  busi- 
ness. 

In  this  case  we  have  the  lawful  commerce  or  business,  namely, 
the  keeping  of  the  hotel.  We  have  also  in  some  sense  a  community  of 
interest  in  the  proceeds  of  the  business,  though  these  are  so  divided 
that  all  the  profits  and  all  the  losses  are  to  be  received  and  borne  by 
one  only.  But  where  in  the  eventual  arrangements  does  it  appear, 
that  either  of  the  parties  clothed  the  other  with  an  agency  to  act  oh 
his  behalf  in  this  business?  We  speak  now  of  intent  merely,  and  not 
of  any  arbitrary  implication  of  intent  which  the  law,  according  to 
some  authorities,  may  raise  irrespective  of  and  perhaps  contrary  to 
the  intent.  Could  Beecher  buy  for  the  business  a  dollar's  worth  of 
provisions?  Could  he  hire  a  porter  or  a  waiter?  Could  he  discharge 
one?  Could  he  say  the  house  shall  be  kept  for  fastidious  guests  ex- 
clusively and  charges  made  in  proportion  to  what  they  demand,  or 
on  the  other  hand  that  the  tables  shall  be  plain  and  cheap  so  as  to 
attract  a  greater  number?  Could  he  persist  in  lighting  with  gas  if 
Williams  chose  something  different,  or  reject  oil  if  Williams  saw  fit 
to  use  it?  Was  a  servant  in  the  house  at  his  beck  or  disposal,  or  could 
he  turn  off  a  guest  that  Williams  saw  fit  to  receive  or  receive  one  that 
Williams  rejected  as  unfit?  In  short  what  one  act  might  he  do  or  au- 
thority exercise,  which  properly  pertains  to  the  business  of  keeping  ho- 
tel, except  merely  the  supervision  of  accounts,  and  this  for  the  purpose 
of  accounting  only?  And  how  could  he  be  principal  in  a  busi- 
ness over  which  he  had  absolutely  no  control?  Nor  must  we  for- 
get that  this  is  not  a  case  in  which  powers  which  might  otherwise 
be  supposed  to  exist  are  taken  away  or  excluded  by  express  stipu- 
lation; but  they  are  powers  which  it  is  plain  from  their  contract 
the  parties  did  not  suppose  would  exist,  and  therefore  have  not  deemed 
it  necessary  to  exclude. 

On  the  other  hand,  what  single  act  are  we  warranted  in  inferring 
the  parties  understood  Williams  was  to  do  for  and  as  the  agent  of 
Beecher?  Not  to  furnish  supplies  surely,  for  these  it  was  expressly 
agreed  should  be  furnished  by  Williams  and  paid  for  daily.  Not 
to  contract  debts  for  water  and  gas  bills  and  other  running  expenses, 
for  by  the  agreement  there  were  to  be  no  such  debts.  Nor  was  this 
an  agreement  merely  that  expenses  incurred  for  both  were  to  be  met 
without  the  use  of  credit,  but  it  was  expressly  provided  that  they 
were  to  be  the  expenses  of  one  party  only,  and  to  be  used  by  him  from 
his  own  means.  There  was  to  be  no  employment  of  credit,  but  it  was 
the  credit  of  Williams  alone  that  was  in  the  minds  of  the  parties. 

It  is  difficult  to  understand  how  the  element  of  agency  could  be 
more  perfectly  eliminated  from  their  arrangements  than  it  actually 
was.  Beecher  furnished  the  use  of  the  hotel  and.  a  clerk  to  super- 
vise the  accounts,  and  received  for  so  doing  one-third  the  gross  re- 
turns.   It  was  not  understood  that  he  was  to  intermeddle  in  any  way 


TESTS    OF   INTENTION — IN    GENERAL  29 

with  the  conduct  of  the  business  so  long  as  WilHams  adhered  to  the 
terms  of  the  contract.  If  the  business  was  manaji^ed  badly  Beecher 
mjf^^ht  be  loser,  but  how  could  he  help  himself?  He  had  reserved  no 
right  to  correct  the  mistakes  of  Williams,  supply  his  deficiencies  or 
overrule  his  judgments.  He  did  indeed  agree  to  take  and  account 
for  whatever  furniture  should  be  brought  into  the  house  by  Williams, 
but  the  bringing  any  in  was  voluntary,  and  so  far  was  Beecher  from 
undertaking  to  pay  to  the  sellers  the  purchase  price,  that  on  the  con- 
trary the  value  was  to  be  offset  against  the  deterioration  of  that 
which  Beecher  supplied ;  and  it  was  quite  possible  that,  as  between 
himself  and  Williams,  there  might  be  nothing  to  pay.  And  while 
Williams  was  not  compellable  to  put  any  in,  Beecher,  on  the  other 
hand,  had  no  authority  to  put  any  in  at  the  cost  of  Williams. 

It  is  plain,  therefore,  that  if  there  is  any  agency  in  this  case  for 
Beecher  to  act  for  Williams,  or  Williams  to  act  for  Beecher,  it  is  an 
agency  implied  by  law,  not  only  without  having  expressed  a  pur- 
pose that  an  agency  shall  exist,  but  in  spite  of  the  plain  intent  that 
none  shall  exist.  If  therefore  we  shall  say  that  agency  of  each  to 
act  for  the  other,  or  agency  of  one  to  act  for  both  in  the  common 
business,  is  to  be  the  test  of  partnership,  or  to  be  one  of  the  tests, 
but  that  the  law  may  imply  the  agency  irrespective  of  the  intent,  and 
then  imply  the  partnership  from  the  agency,  we  see  at  once  that 
the  test  disappears  from  all  our  calculations.  To  imply  something 
in  order  that  that  something  may  be  the  foundation  whereupon  to 
erect  an  implication  of  something  else  is  a  mere  absurdity.  The  test 
of  partnership  must  be  found  in  the  intent  of  the  parties  themselves. 
They  may  say  they  intend  none  when  their  contract  plainly  shows 
the  contrary;  and  in  that  case  the  intent  shall  control  the  contradictory 
assertion;  but  here  the  intent  is  plain. 

We  have  not  overlooked  any  one  of  the  circumstances  which  on  the 
argument  were  pointed  out  as  peculiar  to  this  case.  None  of  them  is 
inconsistent  with  the  intent  that  Beecher  was  to  be  paid  for  the  use 
of  his  building  and  furniture  merely.  He  retained  possession ;  but 
a  reason  for  this  appears  in  the  power  he  reserved  to  terminate  the 
arrangement  whenever  the  contract  was  broken  by  Williams,  Being 
in  possession,  he  might  suppose  he  could  eject  Williams  without  suit. 
He  might  also  think  it  important  to  the  reputation  of  the  hotel  that 
no  landlord  should  be  in  debt  for  supplies  or  for  servants'  wages; 
and  for  that  reason  require  cash  payments.  It  is  easy  to  see  that  as 
lessor  he  might  have  had  an  interest  in  all  the  stipulations  to  which 
Williams'  assent  was  required.  [After  deciding  that  defendant  could 
not  be  treated  as  a  dormant  partner,  the  opinion  concludes:] 

Our  conclusion  is  that  Beecher  and  Williams,  having  never  in- 
tended to  constitute  a  partnership,  are  not  as  between  themselves  part- 
ners. There  was  to  be  no  common  property,  no  agency  of  either  to 
act  for  the  other  or  for  both,  no  participation  in  profits,  no  sharing  of 
losses.  If  either  had  failed  to  perform  his  part  of  the  agreement, 
the  remedy  of  the  other  would  have  been  a  suit  at  law,  and  not  a 


30  WHAT  CONSTITUTES  A  PARTNERSHIP 

bill  for  an  accounting  in  equity.  If  either  had  died  the  obligfations 
he  had  assumed  would  have  continued  against  his  representatives. 
We  also  think  there  can  be  no  such  thing  as  a  partnership  as  to  third 
persons  when  as  between  the  parties  themselves  there  is  no  partner- 
ship and  the  third  persons  have  not  been  misled  by  concealment  of 
facts  or  by  deceptive  appearances. 
The  judgment  must  be  reversed  with  costs  and  a  new  trial  ordered. 


VI.  Sharing  Gross  Returns** 


DRY  V.  BOSWELIv. 

(Court  of  Common  Pleas,  1808.     1  Camp.  329.) 

Assumpsit  for  work  and  labor,  and  materials  in  and  about  the  re- 
pairs of  a  lighter.    Plea,  the  general  issue. 

There  was  no  doubt  as  to  the  repairs  being  done;  and  the  only 
question  was,  whether  the  defendant  was  liable  for  them.  The  wit- 
nesses first  stated  that  the  lighter  was  the  sole  property  of  a  person 
of  the  name  of  Russell ;  that  she  was  let  out  by  him  to  the  defendant, 
who  worked  her ;  and  that  the  two  shared  her  profits  equally  between 
them. 

Lord  Ellenborough  said  in  that  case  the  defendant  was  to  be  con- 
sidered a  partner,  and  was  jointly  liable  for  the  repairs  done  to  the 
lighter.  There  was  here  a  participation  of  profit  and  loss,  which  con- 
stituted a  partnership. 

But  the  agreement  with  Russell  subsequently  appeared  to  be  this, 
that  the  defendant,  in  consideration  of  working  the  lighter,  should  re- 
ceive half  her  gross  earnings,  and  that  Russell  as  owner  should  re- 
ceive the  other  half. 

Lord  Ellenborough  observed  that  this  was  only  a  mode  of  paying 
the  defendant  wages  for  his  labor,  and  was  different  from  a  participa- 
tion of  profits  and  loss;  so  that  under  these  circumstances  no  partner- 
ship could  be  considered  as  existing  between  him  and  the  owner  of  the 
lighter. 

Evidence,  however,  was  afterwards  given  of  the  defendant  having 
himself  ordered  the  repairs  to  be  done,  and  the  plaintiff  had  a  verdict. 

16  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  10. 


eHABINQ   FB0FIT8  81 


VII.  Sharing  Profits  »• 


FECHTELER  et  al.  v.  PALM  BROS.  &  CO. 

(Circuit  Court  of  Appeals  of  the  United  States,  1904.    133  Fed.  462,  C6  C.  C. 

A.  33G.) 

Bill  to  obtain  an  accounting  under  a  contract  between  the  com- 
plainants, comprising  a  firm  engaged  in  business  in  the  city  of  New 
York,  under  the  name  of  Palm,  Fechteler  &  Co.,  and  the  defendant, 
a  corporation  of  Ohio,  doing  business  at  Cincinnati,  under  the  corpo- 
rate name  of  Palm  Bros.  &  Co.  The  contract  provided  in  substance 
the  following:  The  plaintiffs  agreed  to  supply  at  actual  cost  all 
goods  in  the  plaintiffs'  line  which  defendant  should  select,  and  to  pay 
to  the  defendant  a  sum  of  money  equal  to  36  per  cent,  of  the  total  and 
entire  gross  profits  made  each  year  in  the  plaintiff's  business.  Plaintiffs 
further  agreed  to  employ  at  least  $100,000  in  their  business  during  the 
life  of  the  contract.  The  defendant  agreed  to  supply  at  actual  cost 
all  goods  in  defendant's  line  which  plaintiffs  should  select,  and  to  pay  to 
plaintiffs  a  sum  of  money  equal  to  64  per  cent,  of  the  total  and  entire 
gross  profits  made  each  year  in  the  defendant's  business.  The  plain- 
tiffs and  defendant  were  engaged  in  the  same  line  of  business.  The 
agreement  was  to  continue  12  years,  and  settlements  were  to  be  made 
annually. 

LuRTON,  Circuit  Judge.^^  *  ♦  *  j^y^  ^^^^  ^j^g  contract  in  suit 
actually  create  the  relation  of  partners  between  the  complainants  and 
the  defendant  corporation,  assuming  the  corporation  to  have  the  power 
to  enter  into  such  relation?  The  question  here  presented  is  not  wheth- 
er the  nature  of  the  agreement  is  such  that  liability  as  a  partner  might 
exist  as  to  third  persons,  but  whether  this  contract  provides  for  an 
actual  partnership. 

The  defendant  has  repudiated  the  contract,  and  defends,  when  sued, 
upon  the  ground  that  it  had  no  power  to  enter  into  a  partnership  agree- 
ment. To  make  good  this  defense,  it  must  show  that  the  contract  is 
one  for  a  partnership — an  actual  partnership — and  it  will  not  do  to  say 
that,  although  no  actual  partnership  was  intended  or  existed,  it  is 
enough  to  show  that  third  persons  might  hold  both  complainants  and 
defendants  liable  as  partners,  although  in  fact  no  such  relation  existed. 
Liability  as  a  partner  to  third  persons  misled  by  appearances  may  some- 
times arise,  though  no  actual  partnership  exists.  But  this  rests  upon 
the  doctrine  of  estoppel.  Partnership  is  a  fact — a  fact  sometimes  made 
out,  like  other  facts,  from  circumstances,  as  well  as  by  direct  evidence. 
Evidence  may  raise  a  presumption  of  a  partnership  so  strong  as  to  be 

16  For  a  discussion  of  principles,  see  Giluiore  on  Partnership,  §  11. 

17  I'art  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


32  WHAT  CONSTITUTES  A  PARTNERSHIP 

conclusive  when  third  persons  are  involved.  And  this  is  the  case  when 
one  has  held  himself  out  as  a  partner  to  one  ignorant  of  the  actual 
fact.  But  this  case  presents  no  such  question,  as  the  rights  of  third 
persons  are  not  involved.  Indeed,  it  would  be  difficult  to  imagine  a 
case  of  liability  to  third  persons  upon  the  ground  of  holding  out,  when 
the  supposititious  partnership  was  with  a  corporation  incapable,  as 
matter  of  law,  of  entering  into  such  a  relation.  If  the  contract  sued 
upon  is  not  one  which  deprives  the  stockholders  of  the  corporation  of 
their  power  and  duty  to  manage  the  corporate  affairs,  or  subjects  the 
corporation  to  the  domination  incident  to  the  affairs  of  a  copartner- 
ship, it  is  not  ultra  vires.  It  devolves,  therefore,  upon  the  defendant 
to  establish  that  the  contract  into  which  it  has  entered  is,  in  substance 
and  legal  effect,  one  of  partnership. 

It  is  not  very  prudent  to  define  a  partnership.  Many  definitions 
have  been  attempted,  and  Sir  George  Jessell,  Master  of  the  Rolls,  in 
Pooley  v.  Driver,  L.  R.  5  Ch.  Div.  458,  471,  referred  to  the  fact  that 
no  less  than  fifteen  such  definitions  by  different  learned  lawyers,  no 
two  of  which  he  says  agree,  are  given  in  the  third  edition  of  Lindley 
on  Partnership,  pp.  2,  3.  Concerning  these  he  says,  "And  I  suppose 
anybody,  by  reading  the  fifteen,  may  get  a  general  notion  of  what  a 
partnership  means."     *     *     * 

The  intent  to  be  partners  is  made  out  when  we  find  a  business  car- 
ried on  for  the  joint  benefit  of  two  or  more  persons,  with  an  agree- 
ment for  a  mutual  participation  in  profits,  as  profits.  The  fact  that 
one  of  the  incidents  of  a  partnership — mutual  liability  for  debts — has 
been  eliminated  by  agreement  does  not  change  the  essential  nature  of 
the  relation,  which  is  nevertheless  that  of  a  partnership.  Fleming  v. 
Lay,  109  Fed.  952,  955,  956,  48  C.  C.  A.  748.  Such  a  stipulation,  though 
good  between  the  parties,  will  not  be  valid  as  against  third  persons. 
This  view  reconciles  the  inconsistency  of  holding  that  a  partnership 
exists  in  defiance  of  the  agreement  and  intention  of  the  parties,  as  ex- 
hibited in  some  of  the  cases  which  seem  to  sanction  the  notion  that 
there  may  be  a  partnership  as  to  third  persons,  though  there  had  been 
no  conduct  to  create  an  estoppel,  and  none  between  the  parties  them- 
selves. 

But  in  every  phase  of  the  question  as  to  the  cogency  of  evidence  of 
a  participation  in  profits  it  has  been  understood  that  the  person  sought 
to  be  charged  as  a  partner  must  have  an  interest  in  profits,  as  profits. 
Thus  it  is  said  by  Judge  Story  in  section  49  of  his  work  upon  Part- 
nership, adopting  the  view  of  Collier  upon  Partnerships,  "that  in  order 
to  constitute  a  communion  of  profits  between  the  parties,  which  shall 
make  them  partners,  the  interest  in  the  profits  must  be  mutual ;  that 
is,  each  person  must  have  a  specific  interest  in  the  profits  as  a  princi- 
pal trader."  Meehan  v.  Valentine,  145  U.  S.  611,  619,  623,  12  Sup.  Ct. 
972,  36  L.  Ed.  835.  Hence  it  always  has  been  the  rule  that  if  you  could 
show  that  the  participation  in  profits  was  not  a  sharing  in  profits  as  a 
principal — in  profits  as  profits  of  a  joint  business — but  under  an  agree- 
ment by  which  a  sum  was  to  be  received  which  should  be  equal  to  a 


SHARING   PROFITS  33 

definite  proportion  of  the  profits  as  a  compensation  for  services  or 
rent,  or  money  advanced  as  a  loan,  there  will  be  no  liability  as  a  part- 
ner. Such  an  arrangement  would  contradict  the  notion  of  a  partner- 
ship, for  there  would  be  no  participation  in  profits  as  a  principal,  no 
receipt  of  profits  as  profits.  Upon  the  contrary,  the  relation  of  cred- 
itor would  be  made  out;  the  amount  of  the  debt  being  a  sum  of 
money  estimated  by  a  certain  proportion  of  the  profits,  as  a  mere 
measure  or  yardstick.  "The  way  in  which  the  profits  are  to  be  parti- 
cipated in  is  the  essence  of  the  whole  matter."  Cotton,  L.  J.,  in  Ex 
parte  Tennant,  6  Ch.  Div.  303,  316.  This  definition  of  sharing  in  prof- 
its as  evidence  of  a  partnership  is  supported  by  all  the  cases,  and  we 
need  cite  but  a  few  of  the  more  recent  and  controlling:  Berthold  v. 
Goldsmith,  24  How.  (U.  S.)  536,  542,  543,  16  L.  Ed.  762;  Median  v. 
Valentine,  145  U.  S.  611,  619,  12  Sup.  Ct.  972,  36  L.  Ed.  835;  Story, 
Part.  §§  33,  34;   Burnett  v.  Snyder,  81  N.  Y.  550,  37  Am.  Rep.  527. 

Applying  these  principles,  the  case  at  bar  is  of  easy  solution.  TJie 
contract  in  suit  does  not  in  terms  provide  for  a  partnership,  nor  con- 
template any  of  the  incidents  of  a  partnership,  unless  the  provision 
in  reference  to  the  participation  of  each  in  the  profits  of  the  business 
of  the  other  establishes  the  relation  and  liability  of  partners.  But  it 
is  very  clear  that  the  provision  for  a  participation  in  profits  does  not 
contemplate  any  sharing  in  profits  as  a  principal  or  division  of  profits, 
as  profits.  "Profit"  implies,  without  more,  the  gain  resulting  from  the 
employment  of  capital — the  excess  of  receipts  over  expenditure. 
Black's  Law  Dictionary,  citing  Connolly  v.  Davidson,  15  Minn.  519, 
530  (Gil.  428),  2  Am.  Rep.  154;   Story  on  Part.  §  36,  note  3. 

The  old  cases  drew  a  distinction  between  net  profits  and  gross 
profits.  In  discussing  the  kind  of  participation  in  profits  which  oper- 
ated to  create  the  relation  of  partners,  it  is  said  that: 

"The  true  meaning  of  the  language,  an  'interest  in  profits,  as  profits,' 
seems  to  be  that  the  party  is  to  participate,  indirectly  at  least,  in  the 
losses,  as  well  as  in  the  profits,  or,  in  other  words,  that  he  is  to  share 
in  the  net  profits,  and  not  in  the  gross  profits.  If  he  is  to  sliare  in  the 
net  profits,  which  supposes  him  to  have  a  participation  of  profit  and 
loss,  that  will  constitute  him  a  partner;  if  in  the  gross  profits,  then  it 
will  be  otherwise."     Story  on  Part.  §§  34,  42,  and  cases  cited. 

Under  the  contract  in  suit,  the  sharing  was  to  be  not  in  the  net 
gains  or  profits  made  by  the  one  party  in  the  business  carried  on  by 
the  other,  but  in  the  gross  profits.  That  net  profits  were  not  meant, 
they  make  plain  by  a  definition  found  in  the  fifth  paragraph,  where 
it  is  stated,  in  substance,  that  "gross  profit"  means  the  aggregate 
sales  made,  whether  collected  or  not,  after  deducting  the  cost,  import 
duties,  and  carriage,  and  that  "no  other  charges,  expenses  or  losses 
of  whatever  kind  or  nature  shall  be  deducted  from  said  gross  profits." 
Thus  the  participation  was  in  the  gross  amount  of  sales  after  the  de- 
ductions above  mentioned  were  made.  The  losses  in  bad  debts  and 
the  cost  of  business  might  consume  the  margin  between  the  cost  and 
Gilm.Part. — 3 


34  WHAT  CONSTITUTES  A  PARTNERSHIP 

sale  price,  and  yet  the  complainants  would  be  entitled  to  receive  a 
certain  per  cent,  of  the  gross  profit,  though  the  business  had  made  no 
actual  gains,  or  had  even  made  a  loss.  There  was,  then,  no  sharing 
in  losses,  and,  under  the  old  cases,  no  participation  in  profits,  as  prof- 
its, such  as  would,  without  more,  raise  a  presumption  of  partnership. 

*  *     * 

Thus,  though  there  is  to  be  a  sharing  in  gross  profits,  it  is  not  to 
be  a  participation  in  profits,  as  profits,  or  as  a  principal  in  trade.  Up- 
on the  contrary,  the  plain  purpose  is  that  each,  in  consideration  of  the 
privilege  of  picking  and  choosing  the  goods  or  designs  made  or  im- 
ported by  the  other,  agrees  to  pay  the  actual  cost  of  such  goods  so 
selected  and  furnished,  and  also  "to  pay"  the  other  at  the  end  of  each 
year  "a.  sum  of  money  equal  to"  a  definite  per  cent,  of  the  entire 
gross  sales  of  the  party  making  the  payment,  less  only  the  actual  cost 
and  carriage  of  such  goods.  It  is  an  agreement  to  pay,  not  to  divide 
as  .principals  would  do,  but  to  pay  a  sum  of  money  "equal  to"  (that 
is,  measured  or  estimated  by)  a  certain  proportion  of  the  gross  prof- 
its. It  is  evident  from  these  considerations  that  the  character  in  which 
the  one  party  would  receive  a  proportion  of  the  gross  profit  realized 
from  the  business  of  the  other  would  be  that  of  a  creditor,  rather  than 
that  of  a  principal  trader. 

Unsupported  as  the  claim  of  a  partnership  is  by  any  provisions 
giving  either  party  the  slightest  control  of  the  business  of  the  other, 
or  any  indication  that  the  plan  is  a  mere  scheme  or  device  to  carry  on 
trade  as  partners  without  subjecting  themselves  to  the  incidents  and 
liabilities  of  such  an  arrangement,  we  can  but  reach  the  conclusion  that 
the  learned  judge  below  erred  in  the  view  he  took  of  the  contract. 

*  4c       4t 

Decree  dismissing  the  bill  reversed,  with  directions  to  remand  for 
an  answer. 


VIII.  Sharing  Profits  and  Losses  *• 


CLIFTON  V.  HOWARD. 

(Supreme  Court  of  Missouri,  1886.    89  Mo.  192,  1  S.  W.  26,  58  Am.  Rep.  97.) 

Henry,  J.^"  This  is  an  action  of  replevin,  to  recover  of  defendant 
32  head  of  fat  cattle,  taken  by  him  as  the  property  of  James  K.  Estis 
on  an  execution  against  Estis  in  favor  of  B.  S.  Walker.  The  defense 
was  that  plaintifif  in  this  case  and  Estis  had  fraudulently  conspired 

18  For  a  discussion  of  principles,  see  Gilmore  on  Partnersliip,  §  12. 

19  Part  of  the  opinion  is  omitted. 


SHARING   PROFITS   AND   LOSSES  M 

to  cheat  and  defraud  the  creditors  of  Estis,  who  was  in  fact  the  owner 
of  the  property,  and  that  CHfton's  claim  was  made  in  furtherance  of 
said  frauchilent  scheme. 

The  evidence  tended  to  prove  that  plaintiff,  Clifton,  and  Estis,  both 
residents  of  Morgan  county,  had  for  years  been  purchasing  and  ship- 
ping cattle  to  St.  Louis,  each  on  his  own  account,  and  to  different  com- 
mission houses, — Clifton  to  Irons  &  Cassidy,  and  Estis  to  George  R. 
Taylor  &  Co. ;  that  neither  was  using  his  own  capital ;  that  they  sev- 
erally had  an  agreement  with  their  respective  commission  merchants 
by  which  he  was  to  purchase  cattle  for  his  commission  merchant,  and 
when  the  cattle  were  delivered  in  the  stock-yards  at  Versailles,  and 
billed  for  shipment  in  the  cars,  he  could  draw  a  sight-draft  on  his  com- 
mission merchant  for  the  amount  paid  for  the  cattle,  he  having  pre- 
viously paid  for  them  by  his  individual  checks  on  banks  at  Versailles; 
that  when  the  cattle  in  controversy  were  levied  upon  in  the  stock  yards 
at  Versailles  they  had  been  billed  by  Clifton  to  Irons  &  Cassidy,  and 
Clifton  had  drawn  a  sight-draft  on  them  in  favor  of  a  bank  at  Ver- 
sailles for  the  amount  necessary  to  cover  his  checks  on  said  bank,  to 
pay  for  the  cattle;  that  said  cattle  were  purchased  by  Clifton,  and 
paid  for  by  his  individual  check  on  said  bank,  and  that  Estis  had  no 
interest  in  said  cattle,  except  under  the  following  arrangement,  made 
by  and  between  him  and  Clifton  about  two  years  before  this  bunch 
of  cattle  was  purchased,  viz. :  In  order  to  avoid  conflict  and  rivalry 
between  them  in  the  cattle  trade  in  that  neighborhood,  it  was  agreed 
that,  in  all  lots  of  cattle  bought  in  the  same  neighborhood,  and  shipped 
by  either,  the  other  should  have  half  of  the  profits,  if  any,  arising  from 
the  shipment,  and  should  pay  half  the  losses  of  such  shipment  and 
sale,  if  any ;  and,  in  pursuance  of  said  arrangement,  they  often  as- 
sisted each  other  in  loading  stock  on  the  cars,  and  accompanied  each 
other  in  purchasing;  and  when  a  portion  of  the  cattle  in  controversy 
were  purchased  Estis  was  present,  and  was  also  present  when  the 
cattle  were  seized  by  Howard,  the  sheriff;  that  when  either  went  out 
of  his  own  neighborhood  and  bought  cattle  it  was  on  his  own  account, 
and  the  other  did  not  share  in  the  profits  of  such  purchases ;  that  be- 
tween the  time  these  cattle  were  levied  upon  and  the  date  at  which 
they  were  replevied  and  shipped,  cattle  declined  in  St.  Louis  40  or 
50  cents  on  the  100  pounds.  The  demand  of  Walker  against  Estis  was 
the  individual  debt  of  Estis,  with  which  plaintilT  had  no  connection 
whatever,  and  was  contracted  long  before  Clifton  and  Estis  had  any 
business  connection  with  each  other.     *     *     * 

The  court  tried  the  cause  upon  the  theory,  as  indicated  by  the  in 
structions  given  at  defendant's  instance,  and  refused  instructions  of 
plaintiff,  that  a  mere  participation  in  the  profits  and  losses  of  the  ven- 
ture by  one  who  had  no  other  interest  in  the  property  was  sufficient  to 
constitute  him  a  copartner  of  the  other  party  in  the  property  itself. 
This  question  was  elaborately  considered  in  the  opinion  of  this  court 


36  WHAT  CONSTITUTES  A   PARTNERSHIP 

delivered  by  Judge  Napton  in  the  case  of  Donnell  v.  Harshe,  67  Mo. 
170,  and  the  conclusion  announced  was  "that  a  mere  participation  in 
profit  and  loss  does  not  necessarily  constitute  a  partnership."  This 
case  was  followed  in  that  of  Musser  v.  Brink,  68  Mo.  242,  and  again 
in  the  same  case,  reported  in  80  Mo.  350.  Rapp  v.  Vogel,  45  Mo.  524, 
is  to  the  same  effect.  Alfaro  v.  De  La  Torre,  decided  by  the  English 
high  court  of  chancery,  in  which  a  brief  synopsis  of  the  decision  will 
be  found  in  3  Cent.  Law  J.  473,  seems  to  be  directly  in  point  on  the 
question,  and  in  harmony  with  what  this  court  held  in  the  cases  supra. 

In  Story  on  Partnership,  §  27,  the  learned  author  says :  "And  ac- 
cordingly it  has  been  held,  at  the  common  law,  that  if  A.  is  owner  of 
goods,  and  agrees  with  B.  that  B.  shall  be  interested  in  a  partnership 
portion  of  the  profit  and  loss  of  the  adventure,  or  voyage  abroad,  in 
which  the  goods  are  to  be  embarked,  such  an  agreement  will  not  alone 
make  A.  and  B.  partners  in  the  goods,  as  between  themselves,  but  only 
partners  in  the  profits."  As  to  persons  who  have  dealt  with  them  as 
partners,  this  question  would  be  presented.  It  is  not,  however,  in  this 
record,  because  the  debt  for  which  the  cattle  were  seized  was  contract- 
ed by  Estis  on  his  own  account,  long  before  he  and  this  plaintiff  had 
formed  any  business  connection.  As  to  such  a  creditor,  his  debtor 
must  have  an  interest,  not  only  in  the  profits  and  losses,  but  also  in  the 
property  the  subject  of  the  speculation.  In  Alfaro  v.  De  La  Torre, 
supra,  the  ruling  seems  to  have  been  that  an  agreement  between  two 
persons  to  divide  the  profit  or  loss  upon  a  sale  of  goods,  which  are 
to  be  bought  and  paid  for  by  one  of  them,  does  not  create  a  joint 
property  in  the  goods. 

The  judgment  is  reversed,  and  the  cause  remanded.    All  concur. 


IX.  Common  Ov^mership  of  Property 


BUTLER  SAVINGS  BANK  v.  OSBORNE  et  al. 

(Supreme  Court  of  Pennsylvania,  1893.     1.59  Pa.  10,  28  Atl.  163,  39  Am.  St. 

Rep.  GG.5.) 

Williams,  J.  The  question  raised  on  this  record  grows  out  of  the 
following  facts:  The  firm  of  D.  Osborne  &  Bros,  was  engaged  in 
drilling  oil  wells,  and  producing  oil.  It  was  an  owner  of  some  leases 
on  which  it  was  operating,  and  a  part  owner,  as  a  tenant  in  common 
with  other  part  owners,  in  others.  In  the  same  district,  the  firm  of 
Carruthers  &  Peters  was  engaged  in  the  same  business,  and  in  the 

20  For  a  discussion  of  principles,  see  Gilinore  on  Partnersliip,  §  13. 


COMMON    OWNERSHIP   OF    PROPERTY 


37 


same  manner.  Each  of  these  firms  bought  an  undivided  one-half  of 
two  leases,  known,  respectively,  as  the  "Cookman  Lease"  and  the 
"Duncan  Lease."  Both  leases  were  obtained  from  the  same  vendor, 
who  was  engaged  in  drilling  a  well  upon  one  of  them  at  the  time  of 
sale.  The  sale  included  the  drilling  tools  and  machinery  in  actual  use, 
and  it  was  agreed  that  Duncan,  their  vendor,  should  proceed  to  com- 
plete the  work  of  drilling  he  had  begun.  When  this  was  done,  the 
two  firms  proceeded  to  prepare  the  well  for  pumping,  each  paying 
one-half  of  the  expenses  incurred.  As  soon  as  the  first  well  was  put 
in  order,  the  owners  entered  into  an  agreement  with  each  other  to 
drill  another  well  on  the  same  lease,  and  to  pay  their  one-half  part  of 
the  cost  of  it.  They  divided  the  expenses  incurred  in  pumping  and 
in  the  care  of  the  leases  in  the  same  manner,  each  paying  one-half. 
The  oil  produced  was  run  into  pipe  lines  serving  the  district,  and  there 
credited,  one-half  to  Osborne  &  Bros.,  and  one-half  to  Carruthers 
&  Peters. 

Upon  these  facts  the  appellant  contends  that  the  tenants  in  common 
of  the  Cookman  and  Duncan  leases  became  partners.  It  is  not  alleg- 
ed that  any  contract  of  partnership  was  ever  entered  into  between  the 
two  firms,  or  that  any  new  partnership  name  was  adopted  to  repre- 
sent them  in  their  operations  upon  these  leases.  Their  relation  to- 
wards each  other,  as  the  result  of  their  purchase  of  their  respective 
interests  in  the  leases,  was  that  of  tenants  in  common.  They  were  en- 
gaged in  the  development  and  operation  of  the  common  property  fur 
their  individual  benefit.  They  were  doing  what  tenants  in  common 
may  properly  do,  and  in  the  only  way  practicable  for  them,  viz.  turn- 
ing the  common  property  to  the  profit  of  its  owners  at  their  individual 
cost,  and  dividing  the  product  between  themselves,  in  the  pipe  lines, 
in  shares  corresponding  with  their  interest  in  the  title.  The  firm  of 
D.  Osborne  &  Bros,  seems  to  have  been  badly  in  debt.  The  Butler 
Savings  Bank  was  among  its  creditors,  and  was  the  holder  of  two 
judgments  against  the  firm  and  the  individuals  composing  it,  on  which 
writs  of  fieri  facias  were  issued  on  29th  of  June,  1892.  The  appel- 
lant was  also  a  creditor,  having  one  or  more  judgments  entered 
against  the  firm.  On  the  2d  of  July,  1892,  it  caused  a  special  writ 
of  fi.  fa.  to  be  issued  directing  the  sheriff  to  levy  on  the  interest  of 
D.  Osborne  &  Bros,  in  an  alleged  partnership  composed  of  the  firms 
of  D.  Osborne  &  Bros,  and  Carruthers  &  Peters.  The  sheriff  seized 
and  sold,  at  tlie  instance  of  the  bank,  the  title  of  Osborne  &  Bros, 
in  both  leases.  At  the  instance  of  the  appellant,  he  seized  and  sold 
the  interest  of  Osborne  &  Bros,  in  the  alleged  new  firm. 

Whether  the  appellant  is  entitled  to  come  in  on  the  fund  raised  by 
the  sheriff  by  means  of  a  sale  made  upon  all  the  writs  in  his  hands 
depends  on  whether  the  alleged  partnership  between  the  tenants  in 
common  had  any  existence,  if  it  did,  the  two  leases  were  partnership 
property  belonging  to  that  partnership.  The  interest  of  Osborne  & 
Bros,  would,  in  that  case,  go  to  the  purchaser  at  sheriff's  sale,  subject 


38  WHAT  CONSTITUTES  A  PARTNERSHIP 

to  a  settlement  of  the  partnership  bushiess,  and  would  be  simply  a 
right  to  receive  one-half  of  what  might  remain  after  that  business 
was  closed  up,  and  the  proceeds  of  such  sale  would  go  to  the  special 
writ  of  fi.  fa.  If,  on  the  other  hand,  no  such  partnership  existed,  then 
the  title  of  D.  Osborne  &  Bros,  was  that  of  a  tenant  in  common  own- 
ing one-half  of  the  leases.  The  purchaser  at  sheriff's  sale  would 
succeed  to  their  title,  and  the  money  raised  would  go  to  the  bank, 
as  the  proceeds  of  the  sale  of  the  property  of  its  debtor.  In  the  case 
of  Dunham  v.  Loverock,  158  Pa.  197,  27  Atl.  990,  38  Am.  St.  Rep.  838, 
we  have  held,  at  the  present  term,  that  tenants  in  common  engaged 
in  the  improvement  or  development  of  the  common  property  will  be 
presumed,  in  the  absence  of  proof  of  a  contract  of  partnership,  to 
hold  the  same  relation  to  each  other  during  such  improvement  or 
development  as  before  it  began.  As  to  third  persons,  they  may  sub- 
ject themselves  to  liability  as  partners  by  a  course  of  dealing,  or  by 
their  acts  and  declarations ;  but  as  to  each  other  their  relation  depends 
on  their  title,  until,  by  their  agreement  with  each  other,  they  change 
it.  The  act  of  25th  April,  1850,  gives  the  courts  jurisdiction  in  equity 
over  the  settlement  of  accounts  between  tenants  in  common  of  mines 
and  minerals,  and  empowers  them  to  "cause  to  be  ascertained  the 
quantity  and  value  of  the  coal,  iron  ore  or  other  minerals,  so  taken 
respectively  by  the  respective  parties,  and  the  sum  that  may  be  justly 
and  equitably  due  by,  and  from,  and  to,  them  respectively  therefor, 
according  to  the  respective  portions  and  interests  to  which  they  may 
be  respectively  entitled  in  the  lands."  This  power  over  the  accounts 
between  tenants  in  common  was  exercised  by  the  courts  of  equity  in 
England  long  before  our  statute  was  passed,  and,  as  between  the  ten- 
ants in  common  and  third  parties,  the  same  controversy  frequently 
arose  that  exists  in  this  case.  The  effort  of  third  parties,  extending 
credit  to  them,  was  to  hold  them  liable  as  partners,  just  as  the  appel- 
lant seeks  to  do  here.  But  the  rule  in  England,  as  I  understand  it  to 
be,  is  that  when  tenants  in  common  agree  to  carry  on  mining  opera- 
tions upon  their  land,  each  contributing  towards  the  expenses  in  pro- 
portion to  his  or  her  respective  interest  or  estate  in  the  land,  they  will 
be  considered,  with  respect  both  to  themselves  and  third  persons,  as 
the  ordinary  owners  of  land  working  their  respective  shares  of  the 
mines,  responsible  only  for  their  own  acts,  subject  to  no  laws  of  part- 
nership whatever,  and  possessing  distinct  rights  in  the  property. 
Bainb.  Mines,  c.  9,  p.  296,  The  several  owners  may  form  a  partner- 
ship for  the  purpose  of  operating  the  common  property,  if  they  so 
agree;  but  in  the  absence  of  an  agreement  they  will  be  presumed  to 
deal  with  each  other  and  the  common  property  as  part  owners,  hold- 
ing as  tenants  in  common,  and  liable  to  each  other  in  account  render- 
ed or  in  equity,  as  the  circumstances  may  seem  to  require.  In  the 
case  now  before  us,  there  is  no  need  to  rely  on  the  presumption,  as 
the  auditor  has  found,  as  a  fact,  that  no  partnership  existed  between 
the  two  firms  owning  the  Cookman  and  Duncan  leases.     From  this 


JOINT    ENTERPRISE   OB   BUSINESS  39 

finding  of  fact  the  auditor  correctly  concluded,  as  a  matter  of  law, 
that  the  special  writ  of  fieri  facias  issued  by  the  appellant  against  the 
interest  of  D.  Osborne  &  Bros,  in  the  alleged  partnership  had  nothing 
on  which  it  could  be  executed.  The  contention  of  the  appellant  fails, 
therefore,  on  both  grounds.  The  law  does  not  imply  a  partnership 
between  tenants  in  common  because  of  the  fact  that  they  agree  to 
develop  or  operate  the  common  property,  since  they  may  rightfully 
do  this  by  virtue  of  their  respective  titles  as  part  owners ;  and,  next, 
the  existence  of  an  express  agreement  creating  a  partnership  is  nega- 
tived by  the  finding  of  the  auditor,  concurred  in  by  the  court  below. 
As  it  is  thus  settled  that  the  alleged  partnership  did  not  exist,  the  con- 
clusion is  inevitable  that  the  sale  on  the  writ  in  favor  of  the  bank  pass- 
ed the  title  of  D.  Osborne  &  Bros,  in  the  two  leases  to  the  sheriff's 
vendee,  who  thereupon  became  a  tenant  in  common  with  the  other 
part  owner.  The  proceeds  of  the  sale  were  therefore  properly  dis- 
tributed in  the  court  below,  and  the  decree  of  distribution  is  afHirmcd. 


X.  Joint  Enterprise  or  Business  '* 


FINCKLE  V.  STACY. 

(High  Court  of  Chancery,  1725.    MacNaghten's  Select  Cases,  9.) 

Joint  articles  were  entered  into  for  the  doing  of  a  particular  piece 
of  work  for  the  late  Duke  of  Marlborough,  on  account  of  which  sev- 
eral sums  of  money  had  been  jointly  received  by  them,  and  immediate- 
ly divided  between  them;  there  being  a  sum  demanded  by  them  in 
arrear,  which  the  Duke  refused  to  pay,  as  being  unreasonable.  Stacy 
applied  to  Finckle  to  join  with  him  in  a  suit  to  recover  what  was 
in  arrear,  which  he  refused  to  do,  declaring  he  had  several  advanta- 
geous works  under  the  Duke  which  he  should  lose,  should  he  join  in 
a  suit;  on  which  Stacy  applied,  and  got  his  own  half  of  the  money 
which  was  due  to  them  two.  Bill  is  now  brought  for  a  moiety  of 
the  money  so  received ;  and  insisted,  it  should  be  considered  as  a  part- 
nership in  trade,  and  this  money  as  so  much  received  on  the  joint 
account. 

But  the  Court  were  of  opinion,  it  was  not  to  be  considered  as  a  part- 
nership, but  only  an  agreement  to  do  a  particular  act,  between  which 
there  is  great  difference;  and  that  it  is  so  is  plain,  for  the  money 
which  they  had  received  they  immediately  divided,  and  ditl  not  lay  out 
on  a  common  account.    It  is  pretty  extraordinary,  that  he  should  come 

21  I'or  a  discussion  of  principles,  see  Gllmore  on  Partnership,  §  l-L 


40  WHAT  CONSTITUTES  A  PARTNERSHIP 

here  to  have  the  benefit  of  another's  act  in  which  he  refused  to  join ; 
which  refusal  was  with  a  corrupt  view  for  his  own  advantage,  and 
not  on  the  common  account,  the  money  due  on  which  he  would  rather 
sacrifice,  than  forego  his  own  particular  advantage ;  and  here  is  no 
insolvency  in  the  Duke,  if  there  had,  perhaps  had  deserved  considera- 
tion. 

Bill  dismissed  with  costs. 


BURT  V.  LATHROP  et  al. 
(Supreme  Court  of  Michigan,  1883.    52  Micli.  106,  17  N.  W.  716.) 

Campbell,  J.  Plaintiff  sued  a  large  number  of  defendants  as  joint- 
ly liable  to  him  for  his  services  as  attorney  in  defending  some 
patent  suits  concerning  the  rights  to  use  certain  hard-rubber  material 
in  dentistry.  He  declared  specially  and  with  the  common  counts 
for  these  services,  and  also  set  up  two  judgments  rendered  in  Jack- 
son county  for  the  same  causes  of  action.  Upon  trial  court  below 
ordered  a  verdict  for  defendants.  The  counts  which  describe  the 
judgments  do  not  set  them  out  in  such  a  way  as  to  make  out  any 
legal  liability  under  them  against  all  these  defendants,  and  the  proofs 
are  not  any  more  definite.  It  appears  affirmatively  that  no  jurisdiction 
existed  to  bind  more  than  a  part  of  them,  and  there  can  be  nothing 
claimed  for  them  under  the  issue  as  presented.  They  may,  therefore, 
be  laid  aside.  The  ground  for  asserting  a  claim  against  the  de- 
fendants jointly  is  that  they  are  claimed  to  have  become  members 
of  an  association  combined  for  the  purpose  of  legal  resistance  to  the 
claims  of  a  patentee,  and  that  plaintiff  was  employed  by  their  officers. 

There  is  no  testimony  tending  to  show  any  immediate  personal 
employment  of  plaintiff  by  the  defendants,  jointly  or  individually,  so 
as  to  justify  this  joint  action.  But  it  was  claimed  that  they  stood 
on  the  footing  of  partners,  bound  by  the  action  of  their  designated 
managing  members.  The  testimony  indicates  that  several  of  the  de- 
fendants, at  various  times,  became  members  of  an  association  which, 
so  far  as  pertinent  to  this  inquiry,  required  them  to  pay  five  dollars 
each  into  the  treasury,  and  to  pay  such  assessments  as  should  be  levied 
pro  rata,  on  pain  of  being  left  out  of  the  association  and  its  privileges. 
The  officers  were  to  emi)loy  counsel,  and  money  was  to  be  paid  on  the 
order  of  the  president  and  secretary. 

We  can  find  in  this  arrangement  nothing  analogous  to  a  partnership. 
There  was  no  common  business,  and  nothing  involving  profit  and 
loss  in  a  business  sense.  No  one  was  empowered  to  make  contracts 
binding  on  the  subscribers  personally,  and  no  one  was  to  be  liable 
except  for  assessments,  nor  even  for  those  except  as  he  saw  fit  to 
pay  them  to  keep  his  membership.  It  was  nothing  more  than  a  com- 
bination which  may  have  made  the  parties  in  some  respects  responsible 
to  each  other,  but  which  did  not,  we  think,  authorize  any  contract 
with  third  persons  which   should  bind  any  member   personally  be- 


JOINT   ENTERPRISE   OR   BUSINESS  41 

yond  his  assessments.  As  plaintiff  was  not  only  aware  of  the  articles, 
but  showed  that  he  acted  under  them  and  in  furtherance  of  them  in 
various  ways,  no  question  arises  in  the  nature  of  an  equitable  estop- 
pel. We  are  not  concerned  on  this  record  whether  plaintiff  has  any 
other  adequate  means  of  securinj^  compensation.  The  only  question 
now  is  wlicther  these  defendants  are  his  joint  debtors.  We  think 
they  are  not. 

Judgment  affirmed. 


DONNELL  V.  HARSHE. 
(Supreme  Court  of  Missouri,  1877.    G7  Mo.  170.) 

Napton,  J  22  The  principal  and  decisive  question  in  this  case 
is  the  propriety  of  the  following  instruction  given  by  the  court: 
"The  court  instructs  the  jury  that  a  copartnership  is  an  agreement  be- 
tween two  or  more  persons  of  sufficient  capacity  to  contract  to  carry 
on  a  given  business  and  share  the  profits  of  such  business;  and  if 
the  jury  believe  from  the  evidence  in  this  case  that  there  was  either 
a  verbal  or  written  agreement  between  the  plaintiff  and  Emeline 
Harshe,  by  which  the  former  was  to  occupy  and  cultivate  the  farm 
of  said  Emeline  Harshe  for  any  given  length  of  time,  and  that  each 
was  to  receive  a  moiety  or  share  of  the  crops  raised  or  grown  thereon 
under  such  agreement,  then  such  farming  was  a  copartnership  business, 
and  belongs  to  another  adjustment,  and  must  be  settled  or  adjusted 
in  a  different  form  of  action,  and  cannot  be  made  available  in  this 
action;  and  if  they  find  that  the  matters  embraced  in  defendant's 
account  were  connected  with  or  arose  out  of  such  business  they  will 
exclude  all  evidence  of  such  account  from  tlieir  minds,"  etc.  The 
evidence  in  the  case  is  not  stated  in  the  bill  of  exceptions,  but  it  is 
stated  that  evidence  was  offered  tending  to  prove  that  plaintiff  and 
defendant  entered  into  an  agreement  by  which  plaintiff  was  to  culti- 
vate a  farm  of  defendant,  lying  in  St.  Francis  county,  on  shares ; 
that  plaintiff  and  defendant  were  each  to  defray  one  moiety  of  the  ex- 
penses attending  such  cultivation  of  said  farm,  and  were  to  share  equal- 
ly in  the  profits  thereof.  The  instruction  asserts,  as  a  matter  of  law, 
that  the  occupancy  and  cultivation  by  one  of  the  farm  of  another, 
under  an  agreement  that  the  owner  and  occupant  will  divide  crops 
raised  in  an  agreed  proportion,  constitutes  the  owner  and  occupant 
copartners.  This  is  probably  a  very  common  mode  of  leasing  farms 
in  this  state,  but  the  proprietor  and  occupant  might  be  equally  surpris- 
ed to  be  informed  that  they  were  partners. 

A  definition  of  partnership,  broad  enough  to  embrace  all  cases 
and  narrow  enough  to  exclude  such  as  ought  to  be  excluded,  has 
been  found  a  very  difficult  and  embarrassing  task  to  those  writers 
who  have  published  books  on   the   subject.     The  courts   have  been 

»2  Part  of  the  opinion  Is  omitted. 


42  WHAT  CONSTITUTES  A   PARTNERSHIP 

embarrassed,  also,  in  nice  refinements  about  partnerships  inter  se 
and  partnerships  which  are  only  as  to  creditors.  Indeed,  Judge 
Story,  after  a  prolonged  examination  of  these  distinctions,  seems  to 
conclude  that  the  intention  of  the  parties  ought  to  be  the  controlling 
circumstance  to  determine  their  relations,  and  therefore,  where  the 
profits  and  losses  are  to  be  shared  by  the  parties  in  fixed  proportions, 
and,  to  use  his  language,  "each  is  intended  to  be  clothed  with  the  pow- 
ers and  rights  and  duties  and  responsibilities  of  a  principal,  either  as 
to  the  capital  stock  or  the  profits,  or  both,  there  may  be  a  just 
ground  to  assert,  in  the  absence  of  all  controlling  stipulations  and 
circumstances,  that  they  entered  a  partnership."  This,  it  will  be 
perceived,  is  quite  indefinite. 

It  IS  essential  to  a  partnership  that  there  be  a  community  of  interest 
in  the  subject  of  it,  and  this  community  of  interest  must  not  be  that 
of  mere  joint  tenants  or  tenants  in  common.  When  the  effect  of  the 
agreement  is,  as  propounded  in  the  instruction,  that  one  should  oc- 
cupy and  cultivate  the  farm,  and  the  crops  should  be  divided  equally 
between  the  occupant  and  the  owner,  no  partnership  is  necessarily 
intended  or  created.  In  the  case  of  Dry  v.  Boswell,  1  Cham.  329, 
where  there  was  an  agreement  between  the  owner  of  a  lighter  and  a 
lighterman  that  the  lighterman  should  work  the  lighter,  and  the  gross 
earnings  should  be  equally  divided  between  him  and  the  owner,  Lord 
Ellenborough  held  that  this  was  only  a  mode  of  paying  the  lighter- 
man for  his  wages,  and  was  not  a  participation  in  profits  and  loss, 
and  no  partnership  existed.  So  in  Ambler  v.  Bradley,  6  Vt.  119,  A. 
owned  a  sawmill  and  agreed  with  B.  that  the  latter  should  work  it  and 
divide  the  gross  earnings  equally.  They  were  held  not  to  be  part- 
ners. In  Putnam  v.  Wise,  1  Hill  (N.Y.)  234,  37  Am.  Dec.  309,  an 
agreement  between  the  owner  of  a  farm  and  the  occupant  that  the 
latter  should  work  it  on  shares,  and  a  division  be  made  of  the  gross 
earnings  of  the  farm,  was  held  not  to  be  a  partnership.  In  Dwinel 
V.  Stone,  30  Me.  384,  it  was  held  that  a  mere  participation  in  profit 
and  loss  does  not  necessarily  constitute  a  partnership.  "There  must 
be,"  said  Shipley,  C.  J.,  "such  a  community  of  interest  as  empowers 
each  party  to  make  contracts,  incur  liabilities,  manage  the  whole  busi- 
ness, and  dispose  of  the  whole  property,  a  right  which,  upon  the  dis- 
solution of  the  partnership  by  death  of  one,  passes  to  the  survivor, 
and  not  to  the  representatives  of  the  deceased."  In  Caswell  v.  Dis- 
trich,  15  Wend.  (N.  Y.)  379,  the  court  held  an  agreement  between 
landlord  and  tenant  that  the  tenant  should  sow  certain  kinds  of  grain 
and  yield  a  certain  portion  of  each  crop  to  the  landlord  made  them  ten- 
ants in  common  with  the  crops.  In  Denny  v.  Cabot,  6  Mete.  (Mass.) 
82,  an  agreement  was  made  between  H.  and  B.,  by  which  H.  was 
to  supply  B.  with  stock  to  be  manufactured  into  cloth  at  his  mill,  on 
H.'s  account,  and  B.  was  to  manufacture  the  stock  into  cloth  and  to 
deliver  the  cloth  to  H.  at  a  certain  sum  per  yard,  and  H.  could  pay 


JOINT   ENTERPRISE   OR   BUSINESS  43 

him  one-third  part  of  the  net  profits  of  tlie  business,  and  this  was 
held  not  to  make  A.  and  B.  partners.  In  Harrower  v.  Heath  &  Cole, 
19  Barb.  (N.  Y.)  331,  an  agreement  similar  to  the  one  to  establish 
which  proof  was  ofTcred  in  the  present  case  was  held  to  constitute 
the  owner  and  occupiers  tenants  in  common,  both  of  the  farm  and  the 
crops.  And  in  Johnson  v.  Hoffman,  53  Mo.  501,  a  similar  contract 
was  held  to  make  the  landlord  and  tenants  merely  tenants  in  common 
of  the  crops  and  not  the  farm.  It  is  useless,  however,  to  multiply 
authorities  on  this  subject,  as  hardly  any  two  cases  are  exactly  alike, 
and  very  sliglit  shades  of  distinction  lead  to  different  conclusions.  The 
instruction  was  erroacuus,  as  we  think,  and  the  judgment  must  tliere- 
fore  be  *  *  * 
Reversed. 


NOYES  V.  CUSHMAN  et  al. 
(Supreme  Court  of  Vermont,  1S53.    25  Vt.  300.) 

ISHAM,  J.23  The  auditors  have  reported  a  balance  due  the  plain- 
tiff, subject  to  objections  w^hich  have  been  taken  by  the  defendants. 

It  is  insisted  by  the  defendants  that  they  were  not  partners  when 
the  services  were  rendered  by  the  plaintiff,  and  that  this  joint  action 
against  them  as  such  cannot  be  sustained.  We  learn  from  the  report 
that  the  gristmill  and  privilege  were  at  first  purchased  by  the  de- 
fendants, Cushman  and  Noyes,  under  an  agreement  to  rebuild  the 
same  and  share  equally  in  its  expense,  and  that  afterwards  one-sixth 
of  the  same  was  purchased  of  them  by  the  defendant  Alorse  under 
an  agreement  to  be  at  a  like  proportion  of  the  expense  of  rebuilding 
and  putting  the  mill  in  proper  condition  for  improvement  and  use. 
These  several  purchases  vested  the  title  and  interest  in  these  premises 
in  the  defendants  as  tenants  in  common.  Their  mutual  obligation  to 
rebuild  and  repair  does  not  necessarily  constitute  them  partners,  for, 
as  observed  by  Judge  Bronson  in  Porter  v.  McClure,  15  Wend.  (N. 
Y.)  192,  "they  may  or  may  not  become  partners  in  carrying  on  mill- 
ing business."  A  mere  community  of  interest  in  real  or  personal  es- 
tate does  not  constitute  a  partnership.  But  where  a  purchase  of  that 
character  is  made,  and  the  premises  are  rebuilt  or  repaired  for  the 
purpose  of  prosecuting  some  joint  enterprise  or  adventure,  and  under 
an  agreement  to  share  in  the  profits  and  loss  of  the  undertaking,  the 
contract  then  becomes  one  constituting  a  partnership,  and  each  mem- 
ber thereof  is  liable  as  a  partner,  and  they  are  liable  jointly  for  ser- 
vices performed  in  perfecting  their  joint  undertaking. 

The  report  of  the  auditors  shows  this  to  have  been  the  character 
of  the  contract  as  made  by  these  defendants.  After  having  obtained 
a  joint  interest  in  the  gristmill  'and  privilege,  they  became  obligated  to 

»3  Part  of  the  opinion  and  the  statement  of  facts  are  omitted. 


44  WHAT  CONSTITUTES  A  PARTNERSHIP 

rebuild  and  repair  the  same,  for  the  purpose  of  prosecuting  a  joint 
undertaking-  in  the  use  of  this  property  for  miUing  purposes ;  and  the 
defendant  jMorse  was  to  have  one-sixth  of  the  toll  or  profits  of  the 
mill  and  one-half  of  the  remainder  for  taking  charge  of  the  same,  and 
the  other  defendants,  Cushman  and  Noyes,  were  to  have  the  remain- 
ing shares.  In  this  contract  are  found  all  the  elements  of  a  partner- 
ship even  as  between  themselves,  much  more  as  to  third  persons ; 
and  whatever  agreement  may  have  been  made  as  between  themselves, 
as  to  the  manner  in  which  other  persons  were  to  be  employed  and 
paid,  it  can  have  no  effect  upon  their  liability  to  those  who  have  ren- 
dered services  in  promoting  their  joint  undertaking,  particularly 
where,  as  in  this  case,  the  services  were  rendered  under  the  under- 
standing that  the  defendants  were  jointly  liable  therefor,  and  when 
the  plaintiff  was  ignorant  of  any  different  arrangement  as  between  the 
defendants.  We  think,  therefore,  the  auditors  came  to  a  right  con- 
clusion that  the  defendants  were  liable  as  partners  on  this  account  to 
the  plaintiff.     *     *     * 

The  result  is  that  the  judgment  of  the  county  court  is  affirmed. 


XI.  Relations  Distinguishable  from  Partnership  ** 


In  re  GIBBS'  ESTATE. 

Appeal  of  HALSTEAD. 

(Supreme  Court  of  Pennsylvania,   1893.     157  Pa.  59,  27  Atl.  383,  22  L.  R. 

A.  276.) 

Proceedings  for  settlement  of  the  accounts  of  E.  B.  Gibbs,  admin- 
istrator of  Henry  Gibbs,  deceased.  From  a  decree  dismissing  excep- 
tions to  the  report  of  the  auditor  disallowing  the  claims  of  W.  F.  Hal- 
stead,  guardian  of  Mary  E.  Clapp  and  Henry  Clapp,  he  appeals. 

Williams,  J.^^  *  *  *  f^e  appellant  seeks  to  charge  the  estate 
of  Henry  Gibbs  with  money  deposited  by  him,  as  guardian,  in  the 
Home  Savings  Bank,  located  at  South  Waverly,  on  the  theory  that  the 
bank  was  a  general  partnership,  and  that  the  decedent  was  one  of  the 
partners.  The  appellees  deny  that  the  Home  Savings  Bank  was  a  part- 
nership, and  assert  that  the  decedent  purchased  shares  of  stock  in  the 
bank  as  and  for  the  shares  of  stock  in  an  incorporated  bank,  and  not 
otherwise.  At  this  point  it  seems  desirable  to  define  the  words  over 
which  the  contest  extends. 

2  4  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  15. 
2  6  Part  of  the  opinion  is  omitted. 


BELATION9   DISTINGUISHABLE   FROM    PARTNERSHIP  4o 

First.  What  is  a  corporation?  The  several  answers  given  by  text 
writers  may  be  reduce>l  to  the  following  formula:  A  corporation  is 
an  artificial  person  created  by  law  as  the  representative  of  those  per- 
sons, natural  or  artificial,  who  contribute  to,*  or  become  holders  of 
shares  in,  the  property  intrusted  to  it  for  a  common  purpose.  As  it 
is  the  creature  of  positive  law,  its  rights,  powers,  and  duties  are  pre- 
scribed bv  the  law.  Beyond  the  legitimate  purposes  which  it  was  cre- 
ated to  serve,  and  the  lines  of  limitation  the  law  has  drawn  around  it, 
it  is  without  power  to  act  or  capacity  to  take.  Thus  a  banking  cor- 
poration, while  fully  competent  to  do  what  is  usual  and  necessary  in 
its  own  business,  may  not  own  and  operate  a  railroad,  or  engage  per- 
manently in  any  other  business  than  that  for  which  it  was  created.  It 
has  neither  the  legal  capacity  nor  the  right  to  do  so;  and  if  it  under- 
takes to  go  in  any  direction  beyond  its  corporate  powers  its  acts  are 
ultra  vires.  The  creation  of  a  corporation  is  not  within  the  power  of 
the  individuals  who  subscribe  to  its  stock.  It  is  exclusively  the  work 
of  the  law,  and  the  best  evidence  of  the  existence  of  a  corporation  is 
the  grant  of  corporate  powers  by  the  commonwealth. 

Second.  What  is  a  corporation  de  facto?  It  is  an  apparent  corpo- 
rate organization,  asserted  to  be  a  corporation  by  its  members,  and 
actually  acting  as  such,  but  lacking  the  creative  fiat  of  the  law.  In 
Tayl.  Priv.  Corp.  145,  it  is  said  that  a  de  facto  corporation  may  ex- 
ist "when  a  body  of  men  are  acting  as  a  corporation  under  color  of 
apparent  organization,  in  pursuance  of  some  charter  or  enabling  act." 
Their  organization  may  be  imperfect,  so  that  upon  a  quo  warranto 
they  could  not  show  a  sufficient  compliance  with  the  law  to  justify  the 
exercise  of  corporate  powers,  but  as  to  parties  dealing  with  them,  and 
as  to  each  other,  they  are  estopped  to  deny  that  they  are  what  they 
hold  themselves  out  to  be.  In  a  recent  case  in  Minnesota — Finncgan 
V,  Knights  of  Labor,  52  Minn.  239,  53  N.  W.  1150,  18  L.  R.  A.  778, 
38  Am.  St.  Rep.  552 — it  was  held  that  a  de  facto  corporation  exists 
when  these  three  things  concur,  viz.,  a  law  under  which  the  alleged 
corporation  might  be  created,  an  attempt  to  organize  under  the  law, 
an  assumption  and  exercise  of  corporate  powers  under  such  attempted 
organization.  In  Methodist  Church  v.  Pickett,  19  N.  Y.  482,  only  two 
things  were  held  necessary,  viz.,  "the  existence  of  a  charter  or  law  under 
which  a  corporation  with  the  powers  assumed  might  be  lawfully  cre- 
ated, and  a  user  by  the  party  to  the  suit  of  the  rights  claimed  to  be 
conferred  by  such  a  charter  or  law."  Where  there  has  been  a  sub- 
stantial compliance  with  the  law,  the  corporation  is,  of  course,  de  jure. 
Where  there  has  been  no  substantial  compliance,  but  there  has  been 
nevertheless  an  assumption  and  exercise  of  corporate  powers  in  pur- 
suance of  an  attempted  organization,  the  alleged  corporation  is  such 
de  facto  only.  The  Minnesota  courts  hold  the  correct  rule,  and  three 
things  are  necessary  to  create  the  liability:  A  law  or  charter  under 
which  an  organization  de  jure  might  be  eilected;    an  attempt  to  or- 


46  WHAT  CONSTITUTES  A   PARTNERSHIP 

ganize,  which  falls  so  far  short  of  the  requirements  of  the  law  or  char- 
ter as  to  be  ineffectual ;  an  assumption  and  exercise  of  corporate 
powers  notwithstanding  the  failure  to  comply  with  the  law  or  charter. 

Third.  What  is  a  partnership?  Perhaps  the  best  definition  is  that 
given  by  Story:  A  relation  created  by  a  "contract  between  two  or 
more  persons  to  place  their  money,  effects,  labor,  or  slcill,  or  some  or 
all  of  them,  in  lawful  commerce,  and  divide  the  profits  between  them." 
Its  foundation  is  a  contract,  express  or  implied.  It  results  from  the 
act  of  the  parties,  not  from  the  act  of  the  law.  Hedge's  Appeal,  63 
Pa.  273;  17  Amer.  &  Eng.  Enc.  Law,  829.  See,  also,  Modde- 
well  V.  Keever,  8  Watts  &  S.  63 ;  Channel  v.  Fassitt,  16  Ohio,  166 ; 
Murray  v.  Bogert,  14  Johns.  (N.  Y.)  318,  7  Am.  Dec.  466;  Phillips 
V.  Phillips,  49  111.  437.  But  as  to  third  parties  one  may  be  held  liable 
as  a  partner  by  implication  of  law  arising  upon  his  own  acts,  contrary 
even  to  his  own  intention.  Thus  the  officers  and  acting  members  of 
a  corporation  de  facto  may  be  liable  as  partners  if  their  conduct  has 
led  others  to  trust  the  concern  upon  that  basis.  Stafford  National 
Bank  v.  Palmer,  47  Conn.  443.  But  without  a  contract  of  partner- 
ship, or  such  acts  and  declarations  as  lead  others  to  infer  its  exist- 
ence, and  to  extend  credit  on  that  basis,  there  is  no  foundation  on 
which  liability  as  a  partner  can  rest.  The  best  evidence  of  the  exist- 
ence of  a  partnership  is  the  contract  creating  it.  If  proof  of  the  con- 
tract is  not  within  reach,  its  existence  may  be  inferred  from  proof  of 
contribution  to  the  partnership  stock.  If  direct  proof  of  contribution 
cannot  be  had,  it  may  be  inferred  from  participation  in  profits.  In  the 
absence  of  all  this,  the  acts  and  declarations  of  the  parties  sought  to  be 
charged  may  be  resorted  to.  Participation  in  profits  is  not  conclusive 
proof  of  the  existence  of  the  partnership  relation  (Edwards  v.  Tracy, 
62  Pa.  374)  ;  but  both  in  England  and  in  this  country  it  is  cogent  ev- 
idence upon  the  question.  It  puts  the  defendant  upon  his  proofs 
explanatory  of  the  fact.  If  he  is  able  to  show  that  such  participation 
was  referable  to  some  other  reason  such  as  compensation  for  services 
rendered  by  him  as  agent,  broker,  salesman,  or  otherwise,  the  prima 
facies  is  overcome.  So,  if  the  participation  in  the  profits  is  referable 
to  some  other  relation  than  that  of  partnership  between  the  partici- 
pants, such  as  membership  in  a  joint-stock  association  or  a  corpora- 
tion, the    effect  of  proof  of  participation  will  be  overcome. 

In  the  light  of  these  well-settled  rules,  let  us  consider  briefly  the 
position  of  the  parties,  and  the  important  findings  of  fact  made  by 
the  learned  auditor  in  this  case.  The  claimant's  right  to  share  in 
the  fund  in  court  rested  on  the  theory  that  the  Home  Savings  Bank 
in  which  the  money  of  his  wards  had  been  deposited,  was  a  part- 
nership, and  that  the  decedent  was  a  partner.  The  burden  of  prov- 
ing the  fact  that  the  bank  was  a  partnership  was  on  him;  and,  as 
was  said  in  Hallstead  v.  Coleman,  143  Pa.  354,  22  Atl.  977,  13  L.  R. 
A.  370,  "until  that  proof  was  given,  the  defendants  were  not  called 
upon  to  enter  upon  their  defense."    The  proof  made  upon  this  subject 


RELATIONS   DISTINQDISnABLE   FROM   PARTNERSHIP  47 

showed  the  organization  of  a  bank  under  the  name  of  the  Home  Sav- 
ings Bank,  with  a  president,  cashier,  and  a  board  of  directors.  Tliis 
is  the  mode  of  organization  usually  adopted  by  corporations,  and  did 
not  tend  to  prove  a  partnership.  It  was  then  shown  tliat  the  decedent 
bought  and  held  certificates  of  stock  in  the  bank,  after  its  organiza- 
tion, which  recited  not  the  formation  of  a  partnership,  but  the  organi- 
zation of  a  bank  under  the  laws  of  the  state,  and  the  division  of  its 
capital  into  shares  of  $100  each.  This  is  not  the  usual  way  in  which 
partnerships  are  created  and  partners  admitted.  It  is  the  usual  way 
in  which  stocks  are  issued  and  transferred  in  corporations.  Proof 
was  then  made  of  the  receipt  by  the  decedent  of  several  dividends 
upon  his  stock.  These  did  not  purport  to  be  shares  in  the  profits  of 
firm  business,  but  dividends,  declared  in  the  manner  usual  among 
corporations,  upon  the  stock  of  the  bank;  and  were  paid  by  dividend 
checks  drawn  under  the  authority  of  a  board  of  directors.  The  only 
other  evidence  was  the  returns  made  by  the  officers  of  the  bank  under 
the  tax  law  of  1879,  which  threw  very  httle  hght  upon  the  character 
of  the  organization  of  the  bank.  Upon  this  proof  the  questions  for 
the  auditor  were  whether  the  bank  was  shown  to  be  a  partnership, 
and  the  decedent  a  partner.  The  bank  did  business  for  a  number 
of  years,  and  then  failed.  Its  books  and  papers  were  in  the  hands, 
or  subject  to  the  control  of,  the  receiver.  The  manner  of  its  organiza- 
tion was  not  shown.  The  partnership  agreement,  if  any  such  existed, 
was  not  produced.  No  proof  was  given  that  the  officers  or  stock- 
holders claimed  or  held  out  to  the  public  that  the  stockholders  were 
partners,  or  the  bank  a  partnership  enterprise.  It  was  not  alleged  that 
the  decedent  participated  in  any  manner  in  the  business,  or  exercised 
any  control  over  it.  The  whole  case  against  him  rested  on  the  fact 
that  he  had  purchased  shares  in  a  bank,  then  organized  and  doing 
business,  and  received  dividends  declared  by  the  directors,  and  paid 
to  him  in  a  cashier's  check.  We  are  not  surprised  that  the  learned 
auditor  was  led  to  ask,  "What  is  there  in  all  this  evidence,  from  the 
beginning  of  the  business  to  the  failure,  tending  to  prove  a  partner- 
ship?" nor  that  he  answered  his  own  question  by  holding  that  this 
proof  was  insufficient  to  establish  prima  facie  the  existence  of  the 
partnership  relation.  On  the  other  hand,  there  was  much  tending  to 
show  that  Henry  Gibbs  understood  that  he  was  the  holder  of  stock 
in  an  incorporated  bank,  and  that  the  bank  assumed  and  exercised 
corporate  powers,  and  was  dealt  with  by  the  public  as  a  corporation. 
The  form  of  its  certificates,  the  manner  of  their  transfer,  the  election 
of  directors  by  the  stockholders,  the  management  of  the  business  of 
the  bank  by  the  directors  and  the  officers  elected  by  them,  the  mode 
of  declaring  and  paying  dividends,  were  all  suggestive  of  a  corpora- 
tion. They  were  not  suggestive  of  a  partnership.  We  are  unable, 
therefore,  to  say  that  the  auditor  erred  in  finding  that  the  bank  was 
not  shown  to  be  a  partnership.  The  learned  judge  who  heard  the 
exceptions  to  this  report  seems  to  have  concurred  witli  the  auditor, 


48  WHAT  CONSTITUTES  A  PARTNERSHIP 

and  we  require,  under  such  circumstances,  to  be  satisfied  that  a  mis- 
take was  made  before  interfering  with  the  findings.  We  are  not  so 
satisfied;  but  are  of  opinion  that  the  state  of  the  evidence  justified 
the  auditor's  concUision.  This  disposes  of  the  whole  case.  *  *  * 
Decree  affirmed. 


FRENCH  V.  STYRING. 
(Court  of  Common  Pleas,  1S57.    2  C.  B.  N.  S.  357.) 

The  plaintifif  was  a  trainer  of  horses  at  Newmarket;  the  defendant 
was  a  wine-merchant  at  Huddersfield.  In  the  month  of  March,  1854, 
a  race-horse,  called  Census,  was  jointly  purchased  by  the  plaintiff  and 
one  Cohen.  The  latter  afterwards  sold  his  share  of  the  horse  to  one 
Mallinson ;  and  it  was  agreed  between  Mallinson  and  the  plaintiff  that 
the  plaintiff  should  keep  the  horse  for  the  purpose  of  training  him, 
and  should  have  the  entire  control  and,  management  of  him ;  that  35s. 
per  week  should  be  allowed  as  the  expenses  of  his  keep ;  that  the 
plaintiff  should  pay  the  expenses  of  entering  the  horse  and  conveying 
him  to  the  different  races ;  that  each  of  them  should  pay  one-half  of 
the  horse's  keep  and  other  expenses ;  and  that  the  winnings  should 
be  equally  divided  between  them.  Mallinson  having  subsequently 
sold  his  share  of  the  horse  to  the  defendant,  the  latter  agreed  with  the 
plaintiff  that  he  should  continue  to  keep,  train,  and  manage  him  upon 
the  same  terms  as  had  been  agreed  on  with  Mallinson.  The  horse  was 
entered  and  ran  at  several  races,  but  never  won  anything,  and,  having 
ultimately  broken  dow^n,  was  sold  at  Tattersall's  for  i20.  The  plain- 
tiff now  sought  to  recover  from  the  defendant  il65.  lis.  lOd.,  being 
the  moiety  of  the  keep  and  expenses  of  the  horse  since  the  defendant 
became  possessed  of  his  moiety,  allowing  in  the  particulars  credit  for 
ilO,  the  moiety  of  the  sum  for  which  the  horse  was  sold.  There  had 
been  no  previous  settlement  of  accounts  between  the  parties. 

On  the  part  of  the  defendant,  it  was  submitted  that  this  community 
of  profit  and  loss  constituted  a  partnership  between  the  plaintiff  and 
defendant,  and  therefore  that  the  plaintiff  could  not  recover  in  a 
court  of  law  in  respect  of  the  claim  set  up  in  the  second  count. 

The  learned  judge  directed  a  verdict  for  the  plaintiff  for  the  amount 
claimed,  reserving  to  the  defendant  leave  to  move  to  reduce  the  dam- 
ages by  the  sum  mentioned  in  the  second  count,  if  the  court  should  be 
of  opinion  that  the  transaction  created  a  partnership. 

WiLLES,  J.^®  *  *  *  'j'j^g  agreement  here  amounts  to  the  sort  of 
tenancy  in  common  mentioned  in  the  section  of  Littleton  to  which  I 
referred  in  the  course  of  the  argument.  The  effect  of  the  agreement 
seems  to  be  this,  that  the  plaintiff  should  keep  and  train  and  have  the 

28  statement  of  facts  abridged  and  opinions  of  Coclvburn,  C.  J.,  and  Cress- 
well  and  Crowder,  JJ.,  and  part  of  the  opinion  of  Willes,  J.,  are  omitted. 


EBLATI0N8   DISTINGUISHABLE   FROM   PARTNERSHIP  49 

exclusive  management  of  the  horse,  entering  it  and  conveying  it  to 
the  different  races,  and  doing  everything  necessary  to  put  it  in  a  con- 
dition to  run,  and,  in  the  event  of  the  horse  winning,  paying  over  to 
the  defendant  one-half  of  the  amount  of  such  winnings.  It  in  truth 
amounts  to  no  more  than  a  contract  between  two  tenants  in  common, 
whereby  the  one  agrees,  in  consideration  of  certain  things  to  be  done 
by  the  other,  to  abstain  from  exercising  his  rights  in  respect  of  the 
chattel  held  by  them  in  common.  It  is  no  more  a  partnership  than 
if  two  tenants  in  common  of  a  house  agreed  that  one  of  them  should 
have  the  general  management,  and  provide  funds  for  necessary  re- 
pairs, so  as  to  render  the  house  fit  for  the  habitation  of  a  tenant,  and 
that  the  net  rent  should  be  divided  between  them  equally.  Even  if  this 
were  to  be  looked  upon  as  a  contract  of  partnership,  the  point  at  which 
the  partnership  would  necessarily  commence  is  that  at  which  the  horse 
is  put  upon  the  turf  in  a  condition  to  run  for  stakes.  The  payments 
sought  to  be  recovered  here,  are,  payments  made  by  the  plaintiff  in 
the  nature  of  advances  on  behalf  of  the  defendant  anterior  to  the  time 
at  which  any  partnership  could  commence. 

Without  expressing  any  decided  opinion  upon  the  first  point,  upon 
the  second  ground  I  concur  with  the  rest  of  the  court  in  thinking 
that  the  plaintiff  is  entitled  to  recover  upon  the  second  count  as  well  as 
upon  the  first,  and  therefore  that  the  rule  to  reduce  the  damages  must 
be  discharged. 

Rule  discharged. 


THE  QUEEN  v.  ROBSON. 
(Crown  Cases  Reserved,  1SS5.    L.  R.  16  Q.  B.  Div.  1.37.) 

The  prisoner  was  tried  and  convicted  at  the  Autumn  Assizes  for 
the  county  of  Northumberland  on  the  31st  of  October,  1SS5,  on  an 
indictment  framed  under  St.  31  &  32  Vict.  c.  116,  §  1,  charging  that 
he,  being  a  member  of  a  copartnership  called  the  Bedlington  Colliery 
Young  Men's  Christian  Association  (hereafter  called  the  "associa- 
tion"), feloniously  did  in  January,  March,  and  May,  1SS5,  embezzle 
three  several  sums  of  money  of  and  belonging  to  the  said  copartner- 
ship. 

The  object  of  the  association  was,  to  use  the  language  of  one  of 
its  printed  rules,  "the  extension  of  the  kingdom  of  the  Lord  Jesus 
Christ  among  young  men  and  the  development  of  their  spiritual  life 
and  mental  powers."  It  was  composed  of  members  and  associates. 
The  number  of  members  did  not  exceed  20.  Any  person  was  eli- 
gible for  membership  "who  gave  decided  evidence  of  his  conversion 
to  God";  but  before  he  could  become  a  member  he  must  be  proposed 
and  seconded  by  two  members  of  the  association  and  elected  by  the 
committee,  on  their  being  satisfied  as  to  his  suitability.  Trustees  for 
Gilm.Part. — i 


50  WHAT  CONSTITUTES  A  PARTNERSHIP 

the  time  being,  in  whom  the  real  property  belonging  to  the  associa- 
tion was  vested,  became  members  by  virtue  of  their  appointment 
as  trustees.  Members  were  required  to  subscribe  three  shillings  per 
annum.  It  was  not  material  to  consider  the  qualification  or  status  of 
associates.  The  affairs  of  the  association  were  in  the  hands  of  a 
general  committee  of  management,  consisting  of  a  president,  two 
vice  presidents,  a  treasurer,  two  secretaries,  and  at  least  nine  mem- 
bers. The  committee  had  power  to  suspend  or  expel  any  member 
whose  conduct  was  found  inconsistent  in  their  judgment  with  the 
Christian  character.  The  agencies  for  the  attainment  of  the  objects 
of  the  association  were,  first,  the  personal  efforts  of  the  members; 
second,  devotional  meetings;  third,  social  meetings;  fourth,  classes 
for  Biblical  instruction;  fifth,  the  delivering  of  addresses  and  lectures; 
and,   sixth,  the   diffusion  of   Christian   and   other   suitable   literature. 

Before  the  first  of  the  offenses  charged  against  the  prisoner  was 
committed,  the  members  of  the  association  proposed  to  build,  and 
afterwards  built,  a  hall  or  place  of  meeting  for  the  purposes  of  the 
association  at  a  cost  of  nearly  £200,  of  which  about  £40  was  still 
owing.  To  this  building  every  member  had  the  right  of  entry  and 
was  entitled  to  a  latchkey.  The  prisoner  became  a  member  of  the 
association  in  1878,  and  had  continued  to  be  a  member  up  to  the 
time  of  the  trial.  As  and  being  such  a  member  he  solicited  and  ob- 
tained for  the  association  from  divers  persons  many  sums  of  money 
as  donations  or  subscriptions  on  account  of  and  for  the  general  pur- 
poses of  the  association,  towards  the  building  fund,  and  towards  the 
liquidation  of  the  aforesaid  debt  of  £40.  Three  of  these  sums  it 
was  that  the  prisoner  was  charged  with  and  found  guilty  of  embez- 
zling. 

If  the  association  was  a  copartnership  within  the  meaning  of  St. 
31  &  32  Vict,  c,  116,  §  1,  the  conviction  was  to  stand  affirmed.  If 
on  the  contrary  it  was  not,  the  conviction  was  to  be  reversed.'^ 

Walton,  for  the  prisoner.  The  only  question  is  whether  this  as- 
sociation is  a  copartnership.  The  terms  of  the  statute  clearly  show 
that  the  copartnerships  contemplated  thereby  are  copartnerships  in 
the  ordinary  sense  of  the  term,  viz.,  for  the  purposes  of  gain  or 
profit.  Lindley,  L.  J.,  in  his  work  on  Partnership,  p,  1,  gives  an 
explanation  of  the  term  "partnership,"  which  shows  that  the  neces- 
sary idea  of  a  partnership  is  that  it  should  have  for  its  object  the 
acquisition  and  division  of  gain.  He  says:  "Without  attempting  to 
define  the  terms  'partners'  and  'partnership,'  it  will  suffice  to  point 
out  as  accurately  as  possible  the  leading  ideas  involved  in  these  words. 

2  7  St.  31  &  32  Vict.  c.  116,  §  1,  provides  that  "If  any  person,  being  a  mem- 
ber of  any  copartnership,  or  being  one  of  two  or  more  beneficial  owners  of  any 
money,  goods,  or  effects,"  etc.,  "shall  steal  or  embezzle  any  such  money,  goods, 
or  eflec-ts,"  etc.,  "of  or  belonging  to  any  such  copartnership  or  to  such  joint 
beneficial  owners,  every  such  person  shall  be  liable  to  be  dealt  with,  tried, 
convicted,  and  punished  for  the  same  as  if  such  person  had  not  been  or  was 
not  a  member  of  such  copartnership  or  one  of  such,  beneficial  owners." 


BELATIONS   DISTINGUISHABLE   FEOM    PARTNERSHIP  51 

The  terms  in  question  are  evidently  derived  from  to  part,  in  the  sense 
of  to  divide  amongst  or  share;  and  this  at  once  Hmits  their  appHca- 
tion,  although  not  very  precisely,  for  persons  may  share  almost  any- 
thing imaginable,  and  may  do  so  either  by  agreement  or  otherwise. 
But,  in  order  that  persons  may  be  partners  in  the  legal  acceptance 
of  the  word,  it  is  requisite  that  they  shall  share  somefhing  by  virtue 
of  an  agreement  to  that  effect,  and  that  that  which  they  have  agreed 
to  share  shall  be  the  profit  arising  from  some  predetermined  business 
engaged  in  for  their  common  benefit.  »  ♦  ♦  To  use  the  word 
'partnership'  to  denote  a  society  not  formed  for  gain  is  to  destroy 
the  value  of  the  word,  and  can  only  lead  to  confusion.  Nor  is  it  con- 
sistent with  the  modern  usage.  Lord  Hale  and  older  writers  use 
copartnership  in  the  sense  of  co-ownership,  but  this  is  no  longer  cus- 
tomary, and,  as  will  be  shown  hereafter,  there  are  many  important 
differences  between  the  two."  This  is  not  an  association  for  the 
purposes  of  profit  or  gain. 

Lord  Coleridge,  C.  J.^®  It  seems  to  me  that  this  conviction  cannot 
be  supported.  I  cannot  find  any  authority  throwing  any  doubt  on  the 
accuracy  of  the  passage  in  Lindley  on  Partnership,  which  makes  the 
participation  in  profits  essential  to  the  English  idea  of  partnership, 
and  states  that,  although  in  former  times  the  word  "copartnership" 
was  used  in  the  sense  of  "co-ownership,"  the  modern  usage  has  been 
to  confine  the  meaning  of  the  term  to  societies  formed  for  gain.  A 
nunjber  of  definitions  given  by  writers  from  all  parts  of  the  world  are 
appended  to  the  passage,  and  in  all  of  them  the  idea  involved  appears 
to  be  that  of  joint  operation  for  the  sake  of  gain.  The  association  in 
the  present  case  is  not  a  copartnership  in  any  sense  of  the  word  into 
which  the  notion  of  co-operation  for  the  purpose  of  gain  enters.  We 
must  construe  the  word  "copartnership"  as  used  in  the  act  accord- 
ing to  the  meaning  ordinarily  attached  to  it  by  the  decisions  and  text- 
books on  the  subject.  This  association  does  not  come  within  that 
meaning.  The  only  point  reserved  for  us  is  whether  this  association 
is  a  copartnership  within  the  act.  Inasmuch  as  we  are  of  opinion  that 
it  is  not,  the  conviction  must  be  reversed. 

Fields,  Hawkins,  and  Willis,  ]].,  concurred. 


ASH  et  al.  v.  GUIE. 
(Supreme  Court  of  Pennsylvania,  ISSl.    97  Pa.  493.  39  Am.  Rep.  818.) 

Assumpsit  by  Guie  against  Ash  and  over  a  hundred  others  alleged 
to  have  been  "lately  trading  as  Williamson  Lodge,  No.  309,  A.  Y.  ^L." 
for  money  loaned  by  the  plaintiff  below  to  the  defendants,  as  evi- 
denced by  a  certificate  in  writing,  which  acknowledged  that  William- 

S8  statements  of  facts  abridged  and  opinion  of  Denraan,  J.,  omitted. 


52  WHAT  CONSTITUTES  A  PARTNERSHIP 

son  Lodge  aforesaid  was  indebted  to  plaintiff  in  the  sum  of  $100,  pay- 
able in  two  years  from  Nov.  11,  1870,  with  interest.  The  certificate 
was  signed  by  the  worshipful  master  and  wardens  of  the  lodge,  who 
also  "caused  the  seal  of  the  said  lodge  to  be  affixed;"  and  the  sig- 
natures and  seal  were  attested  by  the  secretary  of  the  lodge.  The 
money  was  borrowed  and  used  for  the  construction  of  a  temple  which 
was  owned  by  the  lodge.  Verdict  was  directed  for  the  plaintiff  against 
the  defendants  on  the  theory  that  the  members  of  the  lodge  were  part- 
ners, 

Trunkey,  J.2»  One  of  the  defendants,  called  by  plaintiff,  testified: 
"The  full  title  of  our  lodge  is  Williamson  Lodge,  No.  309,  F.  andl  A. 
M. ;  F.  and  A.  M.  means  Free  and  Accepted  Masons ;  the  purposes 
of  our  lodge  are  charitable,  benevolent,  and  social."  This  is  the  evi- 
dence as  to  the  objects  for  which  the  association  was  formed,  and  with- 
out proof  of  its  constitution  or  rules  respecting  admission  of  members 
and  the  management  of  its  affairs  it  was  held  to  be  a  common  part- 
nership. A  partnership  has  been  defined  to  be  a  "combination  by  two 
or  more  persons  of  capital,  or  labor,  or  skill  for  the  purpose  of  busi- 
ness for  their  common  benefit."  It  may  be  formed,  not  only  for  every 
kind  of  commercial  business,  but  for  manufacturing,  hunting,  and  the 
like,  as  well  as  for  carrying  on  the  business  of  professional  men,  me- 
chanics, laborers,  and  almost  all  other  employments.  It  would  seem 
that  there  must  be  a  community  of  interest  for  business  purposes. 
Hence,  voluntary  associations  or  clubs,  for  social  and  charitable  pur- 
poses, and  the  like,  are  not  proper  partnerships,  nor  have  their  mem- 
bers the  powers  and  responsibilities  of  partners.  T.  Parsons  on  Part. 
6,  36,  42.     *     *     * 

Here  there  is  no  evidence  to  warrant  an  inference  that  when  a  per- 
son joined  the  lodge  he  bound  himself  as  a  partner  in  the  business  of 
purchasing  real  estate  and  erecting  buildings,  or  as  a  partner  so  that 
other  members  could  borrow  money  on  his  credit.  The  proof  fails  to 
show  that  the  officer  or  a  committee,  or  any  number  of  the  members, 
had  a  right  to  contract  debts  for  the  building  of  a  temple  which  would 
be  valid  against  every  member  from  the  mere  fact  that  he  was  a  mem- 
ber of  the  lodge.  But  those  who  engaged  in  the  enterprise  are  liable 
for  the  debts  they  "contracted,  and  all  are  included  in  such  liability 
who  assented  to  the  undertaking,  or  subsequently  ratified  it.  Those 
who  participated  in  the  erection  of  the  building,  by  voting  for  and  ad- 
vising it,  are  bound  the  same  as  the  committee  who  had  it  in  charge. 
And  so  with  reference  to  borrowed  money.  A  member  who  subse- 
quently approved  the  erection  or  borrowing  could  be  held  on  the  ground 
of  ratification  of  the  agents'  acts.  We  are  of  opinion  that  it  was  error 
to  rule  that  all  the  members  were  liable  as  partners  in  their  relation  tc 
third  persons  in  the  same  manner  as  individuals  associated  for  the  pur- 
pose of  carrying  on  a  trade. 

2  8  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


EELATIONS   DISTINGUISHABLE   FROM   PARTNERSHIP  53 

This  unincorporated  association  had  a  seal  which  the  officers  were 
authorized  to  use  for  certain  purposes.  Some  of  those  who  enga^'ed 
in  the  business  of  borrowing  money  directed  it  to  be  affixed  to  the  cer- 
tificate of  indebtedness.  All  who  did,  adopted  it  as  their  seal  for  the 
specific  purpose.  It  was  not  the  seal  of  a  corporation,  nor  intended 
as  such.  The  parties  borrowed  the  money  in  the  name  of  the  lodge, 
and  gave  the  certificate  in  same  name,  and  adopted  a  common  seal. 
They  cannot  repudiate  in  good  faith  to  the  lender.  He  loaned  the 
money  on  a  sealed  instrument,  in  many  respects  better  than  a  simple 
contract.  Those  wiio  advised  affi.xing  the  seal  should  be  held  the  same 
as  their  officers  who  signed  the  certificate.  Were  the  members  part- 
ners, without  evidence  of  agreement  between  them  that  the  seal  should 
be  affixed  to  contracts,  those  not  assenting  to  its  use  in  that  way  would 
not  be  bound  by  a  sealed  instrument,  though  given  for  a  debt  for  which 
all  were  liable.  Schmertz  v.  Shreeve,  62  Pa.  457,  1  Am.  Rep.  439. 
The  learned  judge  was  right  in  ruling  that  the  certificate  was  a  sealed 
instrument,  but  not,  under  the  evidence,  in  holding  that  it  was  author- 
ized by  all  the  members.     *     *     * 

Without  noticing  seriatim  the  two  dozen  assignments  of  error,  we 
have  endeavored  to  express  our  opinion  on  every  material  point  raised 
by  them.  This  writ  is  by  all  the  defendants,  and  they  contend  that 
none  are  liable.  That  the  money  was  fairly  loaned  by  the  plaintifiF 
and  used  by  the  borrowers,  is  not  disputed.  If  any  of  defendants  had 
no  part  in  the  borrowing,  either  by  previous  assent  and  procurement. 
or  by  subsequent  ratification,  they  have  a  meritorious  defence,  and  the 
grounds  on  which  the  judgment  is  reversed  will  avail  them.  The  ques- 
tion is  one  of  fact,  and  must  be  determined  by  the  jury  from  the  evi- 
dence. It  is  difficult  to  conceive  of  a  meritorious  defence  in  those  who 
actually  got  the  money,  some  of  whom  signed  the  certificate,  and  oth- 
ers actively  participated  in  the  giving  of  it.  They  have  a  legal  right 
to  refuse  payment  until  judgment  be  recovered  according  to  law.  But 
they  cannot  complain  if  the  plaintiff  fails  to  include  every  one  in  the 
action  who  is  liable,  or  fails  to  discover  proof  against  every  one  in- 
cluded In  the  nature  of  the  case,  it  is  difficult  for  the  plaintiff  to  de- 
termine in  advance  the  precise  individuals  who  are  liable,  though  he 
be  sure  of. some  of  them;  and  the  court  below  has  not  been,  and  will 
not  likely  be,  slow  to  allow  necessary  amendments,  authorized  by  the 
statutes. 

Judgment  reversed,  and  venire  facias  de  novo  awarded. 


54  WHAT  CONSTITUTES  A  PARTNERSHIP 


XII.  Contract  for  a  Partnership  •• 


DOW  V.  STATE  BANK  OF  SLEEPY  EYE. 

(Supreme  Court  of  Minnesota,  1903.    88  Minn.  355,  93  N.  W.  121.) 

Action  by  Lorenzo  E.  Dow  against  the  State  Bank  of  Sleepy  Eye. 
Judgment  for  plaintiff,  and  from  an  order  denying  a  motion  for  new 
trial  defendant  appeals. 

Collins,  J.^^  March  18,  1901,  five  persons  (Whiteside,  Farrell, 
Spence,  and  Reichenthal,  of  the  city  of  Chicago,  and  L.  P.  Jensen, 
of  Sleepy  Eye,  in  the  state  of  Minnesota)  entered  into  a  written  agree- 
ment in  which  they  stipulated  that  they  "have  agreed  and  do  hereby 
mutually  agree  to  form  a  limited  partnership"  to  engage  in  a  specified 
line  of  business  in  Chicago  "for  the  term  of  five  years,  commencing 
with  December  1,  1901,  under  the  firm  style  of  Whiteside,  Farrell  & 
Co."  Each  of  the  four  men  first  mentioned  was  to  contribute  a  cer- 
tain sum  of  money  to  the  capital  fund,  to  be  paid  in  full  on  or  before 
December  1st,  and  were  to  be  general  partners.  Jensen  was  to  be 
a  special  partner,  in  accordance  with  the  laws  of  Illinois,  contributing 
$10,000  towards  the  capital — two-fifths  of  the  whole — which  sum 
was  also  to  be  paid  on  or  before  December  1st.  It  was  recited  that 
each  of  the  parties,  except  Jensen,  had  deposited  in  bank,  and  in  the 
name  of  the  firm,  on  account  of  his  subscription  to  the  capital,  the 
sum  of  $1,000,  and  that  Jensen  had  deposited  with  Farrell  his  duly 
certified  check  for  the  same  amount  on  account  of  his  subscription, 
and  that  the  deposit  made  by  each  of  these  parties  was  "as  a  guar- 
anty of  his  faithful  performance  on  his  part  of  the  agreement."  This 
check  was  made  payable  to  the  order  of  Whiteside,  Farrell  &  Co.,  the 
agreed  firm  name,  and  was  to  be  held  by  Farrell  personally,  instead 
of  being  deposited  in  the  bank.  It  was  covenanted  that  on  the  fail- 
ure on  the  part  of  any  of  the  persons  named  to  pay  over  the  balance 
of  his  agreed  contribution  on  or  before  December  1st,  "and  to  proceed 
with  and  to  engage  in  the  partnership  business  herein,  in  this  agree- 
ment provided  for,  as  therein  provided,  then  the"  amount  of  the  de- 
posit of  the  party  in  default,  with  all  interest,  should  be  forfeited  to 
such  of  the  other  parties  as  might  be  ready  and  willing  to  pay  and 
to  proceed  with  the  partnership  business ;  the  amount  forfeited  to 
be  divided  equally  between  the  nondefaulting  parties.  All  interest 
earned  on  the  amounts  deposited  by  each  of  the  persons  not  in  default 
was  to  be  paid  over  to  them  individually.     It  was  also  provided  that: 

31  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  16. 
81  Part  of  the  opinion  is  omitted. 


CONTRACT  FOE  A  PARTNERSHIP  55 

"Nothing  contained  in  this  paragraph  shall  be  construed  as  depriving 
any  of  the  parties  to  this  agreement  of  any  rights  which  they  other- 
wise have  at  law  or  in  equity  for  damages,  beyond  such  sum  so  for- 
feited, for  a  failure  on  the  part  of  any  party  or  parties  hereto  to  carry 
out  and  perform  this  contract," 

There  were  other  provisions  as  to  a  division  of  the  profits,  for  a 
division  of  the  work,  the  management  of  the  business,  the  authority 
of  the  partners,  for  the  submission  of  all  questions  of  dispute  between 
them,  prohibiting  the  general  partners  from  engaging  in  any  other 
business  after  December  1st,  during  the  five  years,  and  also  that,  "in 
case  of  the  death  of  any  of  the  general  partners  or  the  special  part- 
ner, such  death  shall  not  work  a  dissolution  of  the  firm,  but  the  sur- 
viving general  partners  shall  continue  the  business  in  such  case  for 
the  full  time  and  in  the  manner  provided  for  herein;  and  in  such 
case  the  heirs  and  legal  representatives  of  such  deceased  general  par- 
ner  shall  stand  in  the  same  relation  to  such  partnership  as  a  special 
partner  would,  subject  to  no  greater  liabilities  and  entitled  to  the 
same  relative  rights." 

The  check  bore  date  of  INIarch  13th,  a  few  days  prior  to  the 
execution  of  the  contract  in  Chicago,  and  evidently  was  made  in  con- 
templation of  it.  On  the  day  of  its  date  it  was  certified  as  good  by 
the  duly  authorized  officer  of  the  bank  on  which  it  was  drawn,  at 
Jensen's  request.  Before  anything  further  was  done  under  the  agree- 
ment, and  on  October  9,  1901,  Jensen  died.  From  the  testimony  it 
appears  that  on  December  1st  Farrell  delivered  the  check  to  White- 
side, Spence,  Reichenthal,  and  himself,  who,  it  seems,  were  then  act- 
ing as  a  partnership  under  the  firm  name  mentioned  in  the  check 
and  in  the  agreement.  On  the  17th  of  December  one  of  these  four 
men,  by  authority  of  his  associates,  placed  this  firm  name  on  the  back 
of  the  check,  and  at  the  same  time  each  one  of  the  four  indorsed  the 
check  individually  to  their  attorneys  in  Chicago — Heckman,  Elsdon 
&  Shaw.  It  is  claimed  that  on  the  same  day  the  check  was  disposed 
of  by  Heckman  to  this  plaintifiF  for  value,  and  that  the  latter  was  a 
bona'  fide  purchaser  thereof.  At  this  time  it  was  indorsed  by  this 
firm  of  attorneys  and  by  Wallace  Heckman  individually,  one  of  the 
firm.  At  the  trial  a  verdict  for  the  plaintiff  w^as  ordered  and  return- 
ed for  the  full  amount  of  the  check,  and  this  appeal  is  from  a  denial 
of  defendant's  motion,  in  the  alternative,  for  judgment  notwithstand- 
ing the  verdict,  or  for  a  new  trial. 

The  first  question  to  which  attention  should  be  given  is  the  agree- 
ment made  between  the  five  persons,  and,  as  before  stated,  bearing 
date  and  actually  executed  in  Chicago  on  March  18th.  If  that  was 
nothing  but  an  executory  agreement  to  enter  into  a  partnership  upon 
the  1st  day  of  December  following  (an  inchoate  partnershiji  contract). 
the  case  must  be  disposed  of  upon  the  ground  that  the  plaintiff  was  not 
and  could  not  be  a  bona  fide  holder  (a  purchaser  of  the  check  free 
from  all  equities  and  defenses),  because  it  was  never  properly  indorsed 


56  WHAT  CONSTITUTES  A  PARTNERSHIP 

or  put  in  circulation  by  the  payee.  If  the  partnership  had  been  form- 
ed as  stipulated,  then  the  right  of  the  firm  to  indorse  the  check  and 
convert  the  proceeds  into  capital  funds  would  have  been  undoubted. 
If  Jensen  had  lived,  but  had  refused  to  proceed,  the  right  of  his  pro- 
posed associates  to  indorse  and  put  the  check  in  circulation  would 
have  been  implied.  Under  the  agreement  the  check  would  have  been 
forfeited  to  such  of  the  other  parties  as  stood  ready  to  perform.  But 
we  are  clearly  of  the  opinion  that  Exhibit  A  was  an  executory  con- 
tract entered  into  on  the  basis  of  the  continuance  of  the  life  of  each 
of  the  parties  thereto.  In  itself  it  did  not  create  a  partnership,  and 
the  persons  signing  it  never  became  partners,  because  performance 
became  impossible  when  Jensen  died.  Such  an  event  was  not  provided 
for  in  the  agreement,  and  when  it  occurred  the  agreement  was  at  once 
annulled  as  to  all  parties.  The  clause  we  have  quoted,  relating  to  the 
decease  of  one  of  the  partners,  was  not  applicable  to  a  death  occur- 
ring before  a  partnership  had  actually  commenced.  It  is  elementary 
that  partnership  relations  must  always  be  assumed  by  mutual  con- 
sent and  unanimously,  and  not  otherwise,  for  they  are  strictly  volun- 
tary and  personal.  A  third  person  cannot  be  introduced  into  a  firm 
as  a  partner  without  or  against  the  consent  of  a  single  member.  Jen- 
sen's legal  representatives  or  his  heirs  at  law  could  not  take  his  place, 
and  force  themselves  upon  the  other  parties  to  the  agreement.  Either 
one  of  the  survivors  could  refuse  to  proceed  or  to  furnish  his  share 
of  the  capital,  and  could  demand  a  return  of  the  deposit,  because  Jen- 
sen had  deceased  and  could  not  become  a  partner;  nor  could  any  one 
else,  except  by  unanimous  consent.  His  estate  could  not  be  compelled 
to  pay  the  amount  agreed  by  him  to  be  paid  toward  the  capital  funds. 
It  is  plain  that  the  other  parties  to  the  contract  could  not  and  should 
not  be  obliged  to  go  into  the  business  with  a  capital  of  $15,000,  when 
it  had  been  agreed  that  it  should  be  $25,000,  of  which  two-fifths 
($10,000)  was  to  be  contributed  by  Jensen.  And  it  is  obvious  from 
some  of  the  provisions  of  the  agreement  that  there  was  no  intention 
to  form  a  present  partnership.  But  if  we  should  hold  that  a  partner- 
ship was  actually  entered  into  in  March,  when  the  contract  was  signed, 
every  person  named  therein  could  be  compelled  to  contribute  the 
amount  of  capital  subscribed  by  him.  And  Jensen's  estate  would  not 
be  relieved  of  pecuniary  obligation  when  the  check  was  paid,  for 
there  was  no  agreement  that  if  the  check  was  paid,  or  if  damages 
were  recovered  in  case  of  nonfulfillment,  Jensen  was  to  be  relieved 
from  his  written  obligation  to  contribute  to  the  capital.  The  agree- 
ment was  executory,  and  there  was  no  partnership  in  praesenti.  Per- 
sons who  have  entered  into  a  contract  to  become  partners  at  some 
future  time,  or  upon  the  happening  of  some  future  contingency,  do 
not  become  partners  until  the  agreed  time  has  arrived,  or  the  contin- 
gency has  happened.  An  executory  contract  does  not  create  a  part- 
nership.    The  contract  must  be  executed,  and  the  partnership  actu- 


CONTRACT  FOE  A  PARTNERSHIP  57 

ally  "launched,"  before  the  relation  will  arise.  Even  after  the  arrival 
of  the  stipulated  time  the  parties  are  not  necessarily  partners,  and 
in  fact  they  are  not  partners  unless  the  partnership  is  launched.  Any 
act,  the  performance  of  which  is  made  a  condition  precedent  to  the 
formation  of  the  partnership,  must  be  performed,  before  a  partner- 
ship will  be  held  to  exist.  The  test  is  to  ascertain  from  the  terms 
of  the  agreement  itself  whether  any  time  has  to  elapse  or  any  act 
remains  to  be  done  before  the  right  to  share  profits  accrues,  for,  if 
there  is,  the  parties  will  not  be  partners  until  such  time  has  elapsed 
or  the  act  has  been  performed.  Shumaker,  Partn.  p.  78  et  seq. 
These  rules  are  laid  down  in  every  text-book  and  in  all  cases  where 
the  subject  has  been  discussed.  We  have  found  none  in  which  it 
has  been  held  that  an  agreement  for  a  partnership  to  commence  at 
a  specified  future  day  created,  alone  and  of  itself,  a  present  partnership, 
even  as  to  third  parties.  More  than  this,  not  one  of  the  provisions 
of  this  agreement  indicates  an  intent  to  create  a  partnership  in  prae- 
senti,  and  all  are  opposed  to  that  idea.  For  illustration,  the  clause  which 
provided  that  in  case  of  default  by  one  or  more  of  the  parties  the 
amount  deposited  by  him  or  them  should  be  divided  among  those  who 
stood  ready  to  fulfill.  The  amount  was  not  to  become  an  asset  of 
the  firm.  Also  the  clause  that  gave  to  each  of  the  parties  whatever 
interest  his  deposit  might  earn  before  December  1st,  and  the  clause 
that  gave  to  each  of  the  general  partners  full  liberty  to  engage  in 
other  business  until  that  day.  It  is  obvious  that  goods  could  not  have 
been  purchased,  nor  could  any  other  form  of  obligation  have  been  in- 
curred, in  the  firm  name,  and  a  recovery  had,  as  against  the  part- 
nership, by  any  person  who  knew  the  contents  of,  and  was  obliged 
to  rely  upon.  Agreement  A.       *     *     * 

As  the  firm  of  Whiteside,  Farrell  &  Co.,  provided  for  in  the  agree- 
ment, and  the  payee  of  the  check,  never  came  into  existence,  the 
paper  was  never  properly  indorsed.  The  partnership  was  never 
launched,  and  the  legal  title  to  the  check  did  not  pass  to  his  proposed 
associates  when  Jensen  died.  It  follows  that  plaintiff  did  not  derive 
title,  and  could  not  have  been  a  bona  fide  purchaser,  through  the  in- 
dorsements made.       *     ♦     * 

Order  reversed.  The  verdict  will  be  set  aside,  and  judgment  entered 
for  defendant. 


58  WHAT  CONSTITUTES  A  PARTNERSHIP 


XIII.  Promoters   of   Corporations — Defective    Corporations 


as 


BIGELOW  V.  GREGORY  et  al. 

(Supreme  Court  of  Illinois,  1874.    73  111.  197.) 

This  was  an  action  of  assumpsit,  brought  by  Bigelow,  appellant, 
against  Charles  A.  Gregory,  Franklin  H.  Watriss,  Oramel  S.  Hougl), 
and  Reuben  Hatch,  as  copartners,  doing  business  under  the  name  and 
style  of  the  Warfield  Cold  Water  Soap  Company,  to  recover  for  goods 
sold  and  delivered.  The  defendants  in  the  court  below  pleaded  the 
general  issue,  and  also  interposed  a  further  plea  denying  the  partner- 
ship, verifying  the  same  by  affidavit.  The  cause  was  tried  by  the  court 
without  a  jury,  and  the  issues  found  and  judgment  rendered  for  the 
defendants.  The  plaintiff  brings  the  record  here  by  appeal  to  re- 
verse the  judgment. 

From  the  testimony  it  appears  that  in  November,  1870,  the  de- 
fendants, with  one  Isaac  N.  Gregory,  signed  a  certain  paper,  com- 
mencing: "Articles  of  Association  of  Warfield's  Cold  Water  Soap 
Company,  of  Milwaukee.  We,  the  undersigned,  being  desirous  of 
forming  a  company  for  the  purpose  of  carrying  on  a  manufacturing 
business,  as  hereinafter  stated,  under  authority  of  the  act  of  the 
Legislature  of  the  state  of  Wisconsin  relating  to  joint-stock  companies, 
approved  April  2,  1858,  and  acts  amendatory  thereof,  do  hereby 
agree  and  certify  that  the  name  of  the  company  is  and  shall  be  'War- 
field's  Cold  Water  Soap  Company,  of  Milwaukee'  " — proceeding  to 
state  at  length  the  objects  of  the  company,  the  amount  of  capital  stock, 
its  number  of  shares,  the  term  of  existence  of  the  company,  the  number 
and  names  of  the  directors  for  the  first  year,  they  being  the  subscribers 
themselves,  how  the  capital  stock  should  be  paid,  the  signers  sub- 
scribing for  all  the  stock  and  agreeing  to  pay  it  as  required  by  the 
directors,  and  concluding:  "We  hereby  adopt  the  foregoing  as  the 
articles  of  association  of  said  Warfield's  Cold  Water  Soap  Company, 
of  Milwaukee,  for  the  purpose  of  becoming  a  body  politic  and  cor- 
porate under  said  name.  Witness  our  hands,  at  Chicago,  Illinois, 
this  twenty-third  day  of  November,  A.  D.  1870.  Charles  A.  Gregory. 
Franklin  H.  Watriss.  Oramel  S.  Hough.  Reuben  Hatch.  Isaac  N. 
Gregory." 

This  paper  was  filed  in  the  ofifice  of  the  Secretary  of  State  of  Wis- 
consin on  the  8th  day  of  July,  1871,  and  in  the  office  of  the  city  clerk 
of  Milwaukee  August  23,  1871.  It  was  also  published  in  two  news- 
papers in  Milwaukee,  the  Guide  and  the  Herald,  September  13  and  15, 
1871. 

3  2  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  17,  18. 


PROMOTERS   OF   CORPORATIONS — DEFECTIVE   CORPORATIONS  G9 

Sheldon,  J.''^  The  only  question  here  arising  is  whether  the  de- 
fendants were  exempt  from  individual  liability  by  reason  of  having  be- 
come a  corporation.  *  ♦  *  We  are  of  opinion  that  in  this  case,  as 
the  question  here  comes  up,  the  right  of  the  defendants  to  be  consid- 
ered a  corporation  depends  upon  their  having  complied  with  the  re- 
quirements of  their  articles  of  association  and  the  filing  of  the  cer- 
tificate. These  are  important  acts  as  affects  the  public  interest,  as  af- 
fording means  of  notice  respecting  the  corporation  to  such  as  deal  with 
it,  so  that  they  may  regulate  their  action  and  give  or  withhold  credit 
accordingly,  and  we  think  they  are  to  be  regarded  as  statutory  prereq- 
uisites, essential  to  corporate  existence. 

The  defendants  are  seeking  escape  from  individual  liability.  Let 
them  show  that  they  have  complied  with  the  statute  which  enables 
them  to  do  so,  at  least  substantially,  as  respects  the  above-named  acts. 
Such  we  regard  to  be  the  doctrine  of  the  authorities.  Unity  Insur- 
ance Co.  V.  Cram,  43  N.  H.  641 ;  Mokelumne  Mining  Co.  v.  Wood- 
bury, 14  Cal.  425,  73  Am.  Dec.  658;  Harris  v.  McGregor,  29  Cal. 
124;  Field  v.  Cooks,  16  La.  Ann.  153;  Angell  &  Ames  on  Corp. 
§  83.     *     *     * 

This  court  has  never  held  that  individuals  could  make  themselves 
a  corporation  by  the  mere  signing  of  articles  of  agreement.  And 
in  the  language  of  T.  Parsons  on  Partnership,  p.  544,  "we  do  not  be- 
lieve that  a  joint-stock  company,  or  any  other  partnership,  can  limit 
its  own  liabilities  and  become  a  corporation  or  limited  partnership 
by  its  own  act  and  without  any  regard  to  the  formalities  or  require- 
ments of  the  law."    And  see  Stowe  v.  Flagg  et  al.,  72  111.  397.    *    *    * 

Nothing  had  been  done  toward  incorporation,  except  the  signing 
of  the  articles  of  association,  until  July  8,  1871,  when  the  articles 
were  filed  with  the  Secretary  of  State  of  Wisconsin.  They  may  be  re- 
garded, perhaps,  as  substantially  embracing  the  particulars  required 
in  the  certificate.  The  greater  portion  of  the  indebtedness  sued  for 
had  been  contracted  prior  to  that  time.  The  filing  of  the  articles  in 
the  office  of  the  city  clerk  of  Milwaukee,  in  which  place  the  business 
of  the  corporation  was  to  be  transacted,  and  the  publication  in  the 
newspapers,  did  not  take  place  until  after  August  19,  1S71,  when  the 
whole  indebtedness  had  been  contracted. 

We  are -of  opinion  the  defendants  were  liable  as  partners,  and  had 
not  absolved  themselves  from  responsibility  as  such  by  having  be- 
come a  corporation. 

Judgment  reversed.'* 

««  Part  of  the  opinion  Is  omitted  nnd  the  statement  of  facts  Is  abridged. 

84  Contra:  Rutherford  v.  Mill.  22  Or.  218.  20  Pac.  540.  17  L.  R.  A.  r.40.  20 
Am.  St.  Rep.  50G  (1S92).  In  McLennan  v.  Hopkins.  2  Kan.  App.  200.  41  Pae. 
1061  (1S05),  the  defendants  did  not  attempt  to  incorporate,  but  pretended  to 
be  a  corporation.    They  were  held  as  partners. 


60  WHAT   CONSTITUTES  A  PARTNERSHIP 


XIV.  Partnership  by  Estoppel" 


THOMPSON  et  al  v.  FIRST  NAT.  BANK  OF  TOLEDO,  OHIO. 

(Supreme  Court  of  the  United  States,  1884.     Ill  U.  S.  529,  4  Sup.  Ct.  GS9,  28 

L.  Ed.  007.) 

Gray,  J.^«  This  action  was  brought  by  the  First  National  Bank  of 
Toledo,  Ohio,  a  national  banking  association  established  at  Toledo, 
against  William  H.  Standley,  William  H.  Whiteside,  Josephus  At- 
kinson, Edward  R.  Thompson,  and  Joseph  Uhl,  as  partners  in  the 
business  of  private  bankers  at  Logansport,  Ind.,  under  the  name  of 
the  People's  Bank,  upon  a  draft  for  $5,000,  drawn  and  accepted  by 
the  partnership  on  August  25,  1877,  payable  in  90  days  after  date  to 
the  order  of  the  plaintiff's  cashier,  and  taken  by  the  plaintiff  in  re- 
newal of  a  like  draft  discounted  by  it  for  the  partnership  on  May  5,' 
1877.  Thompson  filed  a  separate  answer,  denying  that  he  was  a  mem- 
ber of  the  partnership,  or  liable  to  the  plaintiff  on  the  draft  sued  on. 
He  died  pending  the  suit,  and  it  was  revived  against  his  administra- 
tors.    *     *     * 

The  jury  returned  a  general  verdict  for  the  plaintiff,  upon  which 
judgment  was  rendered.  The  defendants  sued  out  this  writ  of  er- 
ror.    *     *     * 

The  plaintiff  at  the  trial  sought  to  charge  Thompson  with  liability 
as  a  partner  upon  two  grounds :  First,  that  he  was  actually  a  partner ; 
second,  that,  if  not  actually  a  partner,  he  had  held  himself  out  to  the 
world  as  such.  And  the  case  was  submitted  to  the  jury  upon  both 
grounds. 

The  first  and  second  assignments  of  error  relate  to  the  exclusion 
of  evidence  offered  by  the  defendants  bearing  upon  the  first  ground 
of  action.  The  third  and  fourth  assignments  of  error  relate  to  the 
instructions  given  and  refused  as  to  the  second  ground  of  action. 

[The  first  and  second  assignments  of  error  were  sustained.] 

The  remaining  and  the  principal  question  in  the  case  is  whether  the 
liability  of  Thompson,  by  reason  of  having  held  himself  out  as  a  part- 
ner, was  submitted  to  the  jury  under  proper  instructions. 

The  court  was  requested  to  instruct  the  jury  that  if  Thompson  was 
not  in  fact  a  member  of  the  partnership,  the  plaintiff  could  not  recover 
against  him.  unless  it  appeared  from  the  testimony  that  he  had  know- 
mgly  permitted  himself  to  be  held  out  as  a  partner,  and  that  the  plain- 
tiff had  knowledge  thereof  during  its  transaction  with  the  partner- 

8  5  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  g  21. 
86  Part  of  the  opinion  is  omitted. 


PAETNERSHIP   BY    ESTOPPEL  61 

ship.  The  court  dedined  to  j^ive  this  instruction,  and  instead  thereof 
instructed  the  jury,  in  substance,  that  if  Thompson  permitted  himself 
to  be  held  out  to  the  world  as  a  partner,  by  advertisements  and  other- 
wise, as  shown  by  the  evidence,  and  to  be  introduced  to  other  persons 
as  a  partner,  the  plaintiff  was  entitled  to  the  benefit  of  the  fact  that 
he  was  so  held  out,  and  he  was  estopped  to  deny  his  liability  as  a 
partner,  althouc^h  the  plaintiff  did  not  know  that  he  was  so  held  out, 
and  did  not  rely  on  him  for  the  payment  of  the  plaintiff's  debt,  or 
give  credit  to  him,  in  whole  or  in  part.  This  court  is  of  opinion  that 
the  circuit  court  erred  in  the  instructions  to  the  jury,  and  in  the  refusal 
to  give  the  instruction  requested. 

A  person  who  is  not  in  fact  a  partner,  who  has  no  interest  in  the 
business  of  the  partnership  and  does  not  share  in  its  profits,  and  is 
sought  to  be  charged  for  its  debts  because  of  having  held  himself 
out,  or  permitted  himself  to  be  held  out,  as  a  partner,  cannot  be  made 
liable  upon  contracts  of  the  partnership  except  with  those  who  have 
contracted  with  the  partnership  upon  the  faith  of  such  holding  out. 
In  such  a  case,  the  only  ground  of  charging  him  as  a  partner  is  that, 
by  his  conduct  in  holding  himself  out  as  a  partner,  he  has  induced  per- 
sons dealing  with  the  partnership  to  believe  him  to  be  a  partner,  and, 
by  reason  of  such  belief,  to  give  credit  to  the  partnership.  As  his  lia- 
bility rests  solely  upon  the  ground  that  he  cannot  be  permitted  to 
deny  a  participation  which,  though  not  existing  in  fact,  he  has  assert- 
ed, or  permitted  to  appear  to  exist,  there  is  no  reason  why  a  creditor 
of  the  partnership,  who  has  neither  known  of  nor  acted  upon  the  as- 
sertion or  permission,  should  hold  as  a  partner  one  who  never  was  in 
fact,  and  whom  he  never  understood  or  supposed  to  be,  a  partner,  at 
the  time  of  dealing  with  and  giving  credit  to  the  partnership.  There 
may  be  cases  in  which  the  holding  out  has  been  so  public  and  so  long 
continued  that  the  jury  may  infer  that  one  dealing  with  the  partner- 
ship knew  it  and  relied  upon  it,  without  direct  testimony  to  that  ef- 
fect. But  the  question  whether  the  plaintiff  was  induced  to  change 
his  position  by  acts  done  by  the  defendant  or  by  his  authority  is,  as 
in  other  cases  of  estoppel  in  pais,  a  question  of  fact  for  the  jury,  and 
not  of  law  for  the  court.  The  nature  and  amount  of  evidence  requisite 
to  satisfy  the  jury  may  vary  according  to  circumstances.  But  the  rule 
of  law  is  always  the  same:  that  one  who  had  no  knowledge  or  belief 
that  the  defendant  was  held  out  as  a  partner,  and  did  nothing  on  the 
faith  of  such  a  knowledge  or  belief,  cannot  charge  him  with  liability 
as  a  partner  if  he  was  not  a  partner  in  fact.     *     *     * 

Mr.  Justice  Lindley,  in  his  treatise  on  the  Law  of  Partnership,  sums 
up  the  law  on  this  point  as  follows :  "The  doctrine  that  a  person  hold- 
ing himself  out  as  a  partner,  and  thereby  inducing  others  to  act  on 
the  faith  of  his  representations,  is  liable  to  them  as  if  he  were  in  fact 
a  partner,  is  nothing  more  than  an  illustration  of  the  general  principle 
of  estoppel  by  conduct."  "The  expression  in  W'augh  v.  Carver,  'if 
he  will  lend  his  name  as  a  partner,  he  becomes  as  against  all  the  rest 
of  the  world  a  partner,'  requires  qualification;    for  the  real  ground 


62  WHAT   CONSTITUTES  A   PARTNERSHIP 

on  which  liability  is  incurred  by  holding  one's  self  out  as  a  partner 
is  that  credit  has  been  thereby  obtained.  This  was  put  with  great 
clearness  by  Air.  Justice  Parke  in  Dickinson  v.  Valpy."  "No  person 
can  be  fixed  with  liability  on  the  ground  that  he  has  been  held  out  as 
a  partner,  unless  two  things  concur,  viz. :  First,  the  alleged  act  of 
holding  out  must  have  been  done  either  by  him  or  by  his  consent ;  and, 
secondly,  it  must  have  been  known  to  the  person  seeking  to  avail  him- 
self of  it.  In  the  absence  of  the  first  of  these  requisites,  whatever  may 
have  been  done  cannot  be  imputed  to  the  person  sought  to  be  made 
liable;  and,  in  the  absence  of  the  second,  the  person  seeking  to  make 
him  liable  has  not  in  any  way  been  misled."  Lindl.  Partn.  (1st  Ed.) 
45^7,  (4th  Ed.)  48-50.     *    *    * 

The  result  is  that  both,  upon  principle  and  upon  authority,  the  third 
and  fourth  assignments  of  error,  as  well  as  the  first,  must  be  sustain- 
ed, the  judgment  of  the  circuit  court  reversed,  and  the  case  remanded 
to  that  court  with  directions  to  order  a  new  trial. 


POOLE  V.  FISHER. 

(Supreme  Court  of  Illinois,  1871.    62  111.  181.) 

Thornton,  J.  This  suit  was  brought  against  appellees,  as  partners, 
for  goods  sold  and  delivered.  They  denied  the  partnership  by  proper 
pleas,  verified  by  affidavit.  The  judgment  was  rendered  against  Fisher 
for  the  debt,  and  in  favor  of  Miller  for  costs.  The  claim  is  not  dis- 
puted; and  the  only  question  is,  was  Miller  liable,  as  partner,  for  the 
debt  incurred?  Fisher,  a  man  without  means  or  credit,  commenced 
business  in  Chicago,  and  purchased  goods  of  appellants,  merchants  in 
New  York.    The  firm  name  was  A.  D.  Fisher  &  Co. 

The  reporter  of  the  mercantile  agency  in  Chicago  had  an  interview 
with  Miller  as  to  the  parties  who  comprised  the  firm  of  Fisher  &  Co. 
Miller  informed  him  that  his  father  and  himself  were  general  part- 
ners of  Fisher.  Upon  this  information  a  report  was  sent  to  New  York 
that  the  firm  was  responsible,  so  long  as  Miller  &  Son  were  connected 
with  it.  Poole  testified  that  Fisher  said  to  him,  when  he  purchased 
goods,  that  Miller  was  his  partner,  and  the  moneyed  man  of  the  firm ; 
that  afterward  he  saw  Miller  in  the  store  in  Chicago;  was  introduced 
to  him  as  the  partner  of  Fisher;  conversed  with  him  as  partner;  sup- 
posed him  to  be  so;  sold  the  goods  under  that  belief;  and  met  Miller 
at  the  Sherman  House  afterward;  and  he  assured  the  witness  that  the 
claim  would  be  paid.  McKean  testified  that  both  Fisher  and  Miller 
told  him  that  Miller  was  one  of  the  firm;  that  he  was  introduced  to 
Miller  as  the  partner  of  Fisher;  and  the  former  admitted  that  he 
was  a  full  partner.  Fisk  testified  that  he  first  met  Miller  and  Fisher 
in  the  fall  of  1867 ;  that  Fisher  spoke  of  Miller  as  his  particular  friend 
and  partner ;   that  Miller  remarked  that  he  took  no  active  part  in  the 


PARTNERSniP   BY    ESTOPPEL  63 

business,  but  allowed  Fisher  to  manage  it ;  that  afterward  Miller  spoke 
to  him  about  a  bill  due  by  the  firm,  and  said  it  must  be  paid.  Kelley, 
a  clerk  for  the  firm,  testified  he  had  a  conversation  with  Miller,  before 
the  store  was  opened,  and  he  said  if  the  business  proved  successful, 
"we  will  go  in  on  a  large  scale;"  that  he  would  be  satisfied  if 
the  store  paid  his  spending  money;  that  on  one  occasion  Miller  said 
to  him,  "do  the  best  you  can  for  us,  and  we  will  do  well  by  you ;" 
that  he  made  inquiries  about  the  business ;  and  that  he  frequently 
heard  Fisher  introduce  Miller  as  his  partner,  without  any  denial  on 
the  part  of  Miller. 

This  proof,  if  it  does  not  show  an  actual  partnership  between  the 
parties,  is  pretty  conclusive  that  one  existed  as  to  third  persons.  The 
testimony  in  defense  is  very  slight.  Fisher  made  a  positive  denial  of 
the  partnership,  and  of  all  his  acts  and  language  indicating  this  re- 
lation. He  is,  however,  so  flatly  contradicted  by  so  many  persons  that 
we  cannot  attach  much  weight  to  his  evidence.  Miller  denied  the 
partnership  in  fact ;  but  he  does  not  negative  the  numerous  acts  and 
remarks  proved  which  necessarily  induced  third  parties  to  believe  that 
he  was  a  partner.  His  reply  generally  was,  "I  don't  remember." 
This  was  manifest  evasion ;  for  it  would  be  passing  strange  if  he  could 
not  recollect  the  interviews  with  Poole,  and  McKean,  and  Fisk.  The 
testimony  of  the  father  has  no  weight  in  the  scale.  He  said  that  his 
son  was  not  a  partner.  How  could  he  know  the  exact  relation  between 
the  parties?  He  said,  however,  that  he  loaned  $10,000  to  Fisher,  and 
that  his  son  and  Fisher  spoke  to  him  about  furnishing  the  money. 
No  reason  is  assigned  for  this  generosity  on  the  part  of  the  father ; 
no  guide  afforded  to  explain  this  exceeding  interest  on  the  part  of 
the  son. 

Wie  shall  not  inquire  whether  there  was  an  actual  partnership  or 
not.  The  acts  and  language  of  Miller  most  clearly  induced  appellants 
to  give  credit  to  the  firm.  The  credit  was  given  upon  his  responsibility. 
These  creditors  evidently  believed  him  to  be  a  partner,  and  acted  upon 
such  belief.  The  belief  was  honest,  and  fully  justified  by  the  conduct 
of  Miller.  The  law  will  therefore  hold  him  liable,  upon  principles  of 
general  policy,  and  for  the  prevention  of  frauds  upon  creditors.  The 
conduct,  as  well  as  representations,  of  Miller  to  one  of  appellants,  are 
sufficient  to  charge  him  as  partner.  He  held  himself  out  as  such,  and 
cannot  escape  the  consequences.  Story  on  Part.  §  64;  Fisher  v. 
Bowles,  20  111.  396;    Niehoflf  v.  Dudley.  40  111.  406. 

The  testimony  is  so  overwhelming  in  favor  of  appellants  that  we  are 
constrained  to  reverse  the  judgment  and  remand  the  cause.  Judg- 
ment reversed. 


64  FORMATION  AND  CLASSIFICATION 

FORMATION  AND  CLASSIFICATION  OF  PARTNERSHIPS 
I.  Partnership  Arises  from  a  Contract  * 


PHILLIPS  V,  PHILLIPS. 

(Supreme  Court  of  Illinois,  1863.     49  111.  437.) 
See  ante,  p.  7,  for  a  report  of  the  case. 


SABEL  et  al.  v.  SAVANNAH  RAIL  &  EQUIPMENT  CO. 
(Supreme  Court  of  Alabama,  1903,    135  Ala.  380,  33  South.  663.) 

Tyson^  J.  The  important  question  presented  is  whether  the  agree- 
ment shown  by  the  bih  constituted  complainants  and  respondents  part- 
ners. It  is  made  to  appear  that  respondents  called  the  complainants' 
attention  to  the  possibility  of  purchasing  on  very  favorable  terms  17 
secondhand  narrow-gauge  locomotives  from  the  Plant  System ;  and 
thereupon  an  agreement  was  made  to  purchase  the  engines,  and  which- 
ever party  (complainants  or  respondents)  should  have  the  opportunity 
to  buy  would  do  so  "upon  the  best  terms  possible,"  and  when  pur- 
chased the  engines  should  be  sold  on  joint  account.  It  further  appears 
that  respondents  did  buy,  but  it  does  not  appear  that  the  purchase 
was  made  on  joint  account.  After  the  purchase,  complainants,  with- 
out knowing  the  terms  of  the  contract  of  purchase,  wrote  the  respond- 
ents, saying:  "We  had  an  agreement  with  you  to  purchase  these  loco- 
motives on  joint  account.  Please  let  us  know  what  you  have  done  in 
the  matter."  To  this  the  respondents  replied :  "We  have  bought  the 
seventeen  narrow-gauge  locomotives  from  the  Plant  System  for  $18,- 
000,  as  they  are.  As  we  stated  to  you  that  we  would  consider  you  in 
the  deal,  if  you  desire  to  be  half  partners  of  this  material,  send  us 
your  check  for  $9,000,  and  we  will  consider  you  in  on  joint  account." 
It  does  not  appear  what,  if  any,  reply  was  made  to  this  letter.  It 
must  be  inferred  that  complainants  made  no  reply,  or  declined  the 
offer.  Complainants  allege  that  they  afterwards  discovered  that  re- 
spondents bought  the  engines  for  $17,000,  without  paying  any  cash 
except  as  the  engines  were  sold  by  them,  and  that  they  received  $10,- 
000  profit  out  of  the  transaction.  The  purpose  of  the  bill  is  to  make 
the  respondents,  as  partners,  account  to  complainants  for  these  profits. 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  22. 


PAETNEESHIP   ABISE9   FBOM    A   CONTBACT  66 

It  would  seem  that,  from  complainants'  refusal  to  reply  to  the  re- 
spondents' letter,  although  the  latter  may  have  stated  the  trade  with 
the  Plant  System  differently  from  that  actually  made,  the  complain- 
ants did  not  consider  themselves  bound  by  the  dealing  of  their  alleg- 
ed partners — conceding  that  there  may  be  a  valid  partnership  be- 
tween the  two  concerns — unless  the  terms  of  the  trade  were  favorable. 
This  is  not  the  way  partners  deal.  When  a  partnership  transaction 
is  made,  partners  are  absolutely  bound  thereby.  There  is  no  discre- 
tion about  participating.  The  respondents'  letter  also  plainly  indicat- 
ed that  they  did  not  consider  the  complainants  concerned  in  the  pur- 
chase until  they  consented  to  be  bound.  Here,  then,  we  have  the  in- 
terpretation of  the  contract  by  both  parties  concerned,  each  indicating 
to  the  other  and  each  acquiescing  in  the  view  that  there  was  a  mere 
agreement  relating  to  the  future,  and  not  an  actual  partnership.  And 
when  we  look  at  the  nature  of  the  agreement  as  detailed  in  the  bill, 
we  see  it  could  mean  nothing  else.  There  was  nothing  contributed ; 
nothing  done  at  the  making  of  the  agreement,  except  to  stipulate  that 
the  parties,  acting  separately,  as  occasion  might  offer,  would  buy  (if 
possible)  the  engines  on  "the  best  terms  possible,"  and  that  when  pur- 
chased on  those  terms,  as  the  complainants  insist,  and  not  otherwise, 
they  would  be  partnership  property,  and  be  sold  as  such.  Who  was 
to  say,  and  when,  that  "the  best  terms  possible"  had  been  made?  The 
agreement  was  not  that  the  purchase  should  be  made  at  all  events, 
or  at  the  discretion  of  either  party,  or  by  their  joint  action.  But,  as 
we  have  said,  each  of  the  partners  was  to  act  separately,  and  thus  on 
individual  account,  until  the  other  party  acceded  to  the  transaction. 
Thus  it  is  made  evident  from  the  conduct  of  the  parties,  and  the  agree- 
ment itself,  that  there  was  no  actual  partnership.  To  constitute  a 
partnership,  there  must  be  a  "valid  agreement  to  enter  into  partner- 
ship, and  this  contract  must  be  executed."  Parsons  on  Part.  p.  6. 
Unless  something  is  done,  or  unless  the  agreement,  from  its  nature, 
operates  in  prsesenti,  the  contract  is  executory,  and  either  party  may 
decline  to  carry  it  out,  though  liable,  it  may  be,  to  a  bill  for  specific 
performance  or  for  damages  at  law  in  proper  cases.  23  Am.  &  Eng. 
Enc.  Law  (2d  Ed.)  52,  and  note  2;  l^leagher  v.  Reed,  14  Colo.  335, 
24  Pac.  681,  9  L.  R.  A.  455,  460;  Latta  v.  Kilbourn,  150  U.  S.  546, 
14  Sup.  Ct.  201,  37  L.  Ed.  1160. 

We  feel  constrained  to  hold  that  the  facts  alleged  in  the  bill  do  not 
show  a  partnership,  and  that  the  motion  to  dismiss  the  bill  for  want  of 
equity  should  have  been  granted.  In  conformity  with  this  conclu- 
sion, a  decree  will  be  here  entered  reversing  the  decree  below  and  dis- 
missing the  bill. 

Gilm.Paet. — 5 


66  FORMATION  AND  CLASSIFICATION 

II.  Requirements  of  the  Contract* 
1.  Competency  of  the  Parties 


HOAGLIN  V.  C.  M.  HENDERSON  &  CO. 

(Supreme  Court  of  Iowa,  1903.    119  Iowa,  720.  94  N.  W.  247,  61  L.  R.  A.  756, 

97  Am.  St.  Rep.  335.) 

McClain,  J."  The  nature  of  the  controversy  involved  in  this  case, 
and  the  questions  of  law  arising  therein,  will  be  better  understood 
from  a  brief  narrative  of  the  facts  as  shown  in  the  evidence:  H.  A, 
Hoaglin  had  been  engaged  in  business  at  Mt.  Pleasant,  and  in  January, 
1900,  sold  out  his  business;  receiving  therefor  a  sum  in  cash  entirely 
insufficient  to  pay  the  indebtedness  contracted  by  him  in  conducting 
his  business.  Being  without  other  property  or  resources,  he  proceed- 
ed to  settle  with  his  creditors,  who  were  pressing  for  payment  of  their 
respective  claims,  by  paying  to  each  a  portion  of  the  indebtedness; 
taking  receipts  in  full  for  the  respective  claims.  It  does  not  appear 
that  these  settlements  were  made  on  any  uniform  basis,  or  in  pur- 
suance of  any  agreement  for  compensation  with  creditors.  In  some 
instances  about  one-third  of  the  claims  were  paid;  in  other  instances, 
more.  One  of  these  creditors  was  the  defendant  firm,  and  through 
their  attorney  they  accepted  one-third  of  their  claim,  and  receipted 
in  full  for  the  entire  amount.  Thereupon  H.  A.  Hoaglin,  with  his  wife, 
who  had  previously  been  conducting  a  millinery  business  in  her  own 
name  in  connection  with  the  business  carried  on  by  H.  A.  Hoaglin, 
removed  to  Ottumwa,  and,  as  it  is  contended,  entered  into  a  contract 
to  carry  on  a  partnership  business  under  the  name  of  H.  A.  Hoaglin. 
This  alleged  firm  was  without  other  assets  than  $250  of  the  wife's 
money,  and  $500  borrowed  by  husband  and  wife  on  their  joint  note 
from  the  wife's  sister.  With  this  sum  of  money  in  hand,  H.  A.  Hoag- 
lin, without  disclosing  the  fact  that  he  was  acting  as  member  of  the 
alleged  firm,  or  that  his  acts  were  done  otherwise  than  in  his  individual 
capacity,  ordered  through  one  Meades,  the  traveling  agent  for  de- 
fendant firm,  a  bill  of  goods  amounting  to  $1,000;  paying  $575  by 
draft  delivered  to  said  Meades,  and  proposing  to  pay  the  balance  on 
time.  The  order  contemplated  the  immediate  shipment  of  the  goods 
from  defendants'  place  of  business,  in  Chicago,  to  H.  A.  Hoaglin,  at 
Ottumwa.  Meades,  having  no  authority  to  accept  an  order  forwarded 
the  order  to  defendants  for  acceptance  and  approval,  accompanied  by 
the   draft,  whereupon   defendants   refused  to  accept  the  order,   and 

e  For  a  discussion  of  principles,  see  Gilmore  on  Partnerstiip,  §§  23-28, 
8  Part  of  the  opinion  Is  omitted. 


BEQUIEEMENTS   OF   THE    CONTRACT  67 

notified  Hoaglin  that  they  would  retain  so  much  of  the  money  as  was 
necessary  to  satisfy  the  balance  of  their  previous  indebtedness  ap:ainst 
him,  and  would  pay  over  to  him,  or  furnish  him  goods  for,  the  surplus. 
Thereupon  Hoaglin  and  wife,  suing  as  partners,  brought  this  ac- 
tion to  recover  from  defendants  the  amount  of  money  represented  by 
the  draft  delivered  by  Hoaglin  to  Meades  for  defendants,  and  ap- 
propriated by  defendants  to  their  own  use.  The  suit,  as  originally 
brought,  was  by  attachment,  and  notice  was  by  publication,  but  de- 
fendants entered  an  appearance  and  secured  the  dismissal  of  the  at- 
tachment by  giving  bond  to  pay  the  amount  of  any  judgment  rendered. 

The  case  was  presented  to  the  jury  in  the  lower  court  on  the  theory 
that  if  the  evidence  showed  Hoaglin  and  wife  to  have  been  partners, 
and  the  money  paid  by  Hoaglin  to  Meades  to  have  been  partnership 
funds,  then  the  attempted  application  by  defendants  of  the  money  re- 
ceived through  Meades  to  the  satisfaction  of  the  individual  debt  of 
Hoaglin  was  improper,  and  plaintiffs,  as  partners,  were  entitled  to 
recover  the  entire  amount  so  paid;  and  counsel  for  appellants  pre- 
sent the  question  whether  husband  and  wife  can  be  partners,  con- 
tending that  there  was  no  lawful  partnership,  and  that  the  money 
paid  by  Hoaglin  was  his  own  money,  out  of  which  defendants  had 
a  right  to  recoup  themselves  to  the  extent  of  Hoaglin's  previous  in- 
debtedness to  them.  We  shall  not  stop  to  consider  the  question  whether 
the  acceptance  by  defendants  from  Hoaglin  of  a  part  of  his  previous 
indebtedness,  under  the  agreement  that  the  entire  indebtedness  should 
thereby  be  discharged,  constituted  an  accord  and  satisfaction,  but 
shall  proceed  at  once  to  determine  whether  a  legal  partnership  between 
husband  and  wife  can  exist  in  this  state. 

The  common-law  rule  that  married  women  cannot  enter  into  a 
contract  of  partnership  seems  to  be  based  on  their  incapacity  at  common 
law  to  contract  for  any  purpose.  Collyer  on  Partnership  (5th  Am. 
Ed.)  §  15;  Parsons  on  Part.  §  19;  Weisiger  v.  Wood,  3G  S.  C.  424, 
15  S.  E.  597;  De  Graum  v.  Jones,  23  Fla.  83,  6  South.  925.  The  power 
of  a  married  woman  to  enter  into  a  contract  of  partnership,  if  it  ex- 
ists at  all  in  any  of  the  states  in  which  the  common-law  system  pre- 
vails, must  depend  upon  statutory  authority ;  and  in  several  cases  the 
question  has  been  considered  as  to  whether  particular  statutory  en- 
largements of  the  powers  of  married  women  as  to  contracting  and 
managing  their  separate  property  have  rendered  them  competent  to 
enter  into  partnership  relations.  Thus  it  has  been  held  that  authority 
to  acquire,  hold,  and  dispose  of  property  as  a  separate  estate  will  sus- 
tain a  contract  of  partnership  made  by  a  married  woman  with  a  per- 
son other  than  her  husband.  Abbott  v.  Jackson,  43  Ark.  212.  And 
undoubtedly  the  general  power  to  contract  which  is  conferred  upon 
married  women  in  some  states  would  support  a  contract  of  partner- 
ship. But  on  the  question  whether  the  statutes  extending  the  powers 
of  married  women  with  reference  to  the  making  of  contracts  and  the 
ownership  and  disposition  of  separate  property  confer  the  power  to 


68  FORMATION  AND  CLASSIFICATION 

enter  into  the  relation  of  a  business  partnership  with  the  husband,  the 
courts  seem  to  be  somewhat  at  variance,  not  only  on  account  of  differ- 
ences in  terms  of  the  statutes  in  which  the  power  is  conferred,  but  al- 
so on  account  of  differences  of  opinion  as  to  the  bearing  of  rules  of 
public  policy.  In  Massachusetts  it  is  said  that  authority  to  buy  and 
sell  and  enter  into  contract  with  reference  to  her  personal  property, 
to  carry  on  trade,  and  to  sue  and  be  sued,  does  not  involve  power  to 
enter  into  a  partnership  with  the  husband.  Lord  v.  Parker,  3  Allen, 
127.  To  same  eft'ect  in  states  where  the  statutes  give  a  married  woman 
the  right  to  control  and  contract  with  reference  to  her  property,  see 
Payne  v.  Thompson,  4-i  Ohio  St.  192,  5  N.  E.  654;  Fuller  v.  Mc- 
Henry,  83  Wis.  573,  53  N.  W.  896,  18  L.  R.  A.  512;  Haas  v.  Shaw, 
91  Ind.  384,  46  Am.  Rep.  607;  Artman  v.  Ferguson,  73  Mich.  146, 
40  N.  W.  907,  2  L.  R.  A.  343,  16  Am.  St.  Rep.  572;  Gwynn  v. 
Gwynn,  27  S.  C.  525,  4  S.  E.  229;  Gilkerson-Sloss  Commission  Co. 
V.  Salinger,  56  Ark.  294,  19  S.  W.  747,  16  L.  R.  A.  526,  35  Am. 
St.  Rep,  105.  In  other  states,  statutes  to  substantially  the  same  effect 
have  been  held  to  so  far  enlarge  the  legal  capacity  of  a  married  woman 
as  to  authorize  her  not  only  to  enter  into  a  partnership  contract  in 
general,  but  specifically  to  enter  into  such  contract  with  her  husband. 
Toof  v.  Brewer  (Miss.)  3  South.  571;  Suau  v.  Caffe,  122  N.  Y. 
308,  25  N.  E.  488,  9  L.  R.  A.  593.  It  has  been  held,  however,  that 
where  the  statutes  not  only  confer  the  right  to  own  and  contract  with 
reference  to  her  separate  property,  but  also  the  general  power  to  con- 
tract, the  wife  may  not  only  enter  into  business  partnership  relations 
in  general,  but  also  specifically  with  her  own  husband,  and  this  is 
said  not  to  be  contrary  to  any  dictate  of  public  policy.  Burney  v. 
Grocery  Co.,  98  Ga.  711,  25  S.  E,  915,  58  Am.  St.  Rep.  342;  Lane 
V.  Bishop,  65  Vt.  575,  27  Atl.  499.  And  see  Bernard  &  Leas  Mfg. 
Co.  V.  Calvin,  12  C.  C.  A.  123,  64  Fed.  309. 

The  question  of  public  policy  involved  in  these  statutory  enlarge- 
ments of  the  powers  and  liabilities  of  married  women  must  be  deter- 
mined with  reference  to  the  general  tenor  of  the  statutory  provisions 
on  the  subject  as  they  have  been  found  in  the  different  states.  In 
this  state,  under  the  provisions  of  Code,  §§  3153,  3164,  which  give  to 
married  women  the  right  to  acquire,  own,  and  dispose  of  property  in  the 
same  manner  and  to  the  same  extent  as  their  husbands  may  do,  and 
to  make  contracts  and  incur  liabilities  which  may  be  enforced  by  or 
against  them  to  the  same  extent  and  in  the  same  manner  as  if  they 
were  unmarried,  it  is  not  open  to  question  that  a  wife  may  become 
surety  for  her  husband,  and  be  liable  generally  on  such  contract  of 
suretyship,  may  become  the  general  creditor  of  her  husband,  may  be 
joint  owner  of  property  with  him,  and  may  be  his  agent,  or  may 
make  him  her  agent,  in  the  transaction  of  business.  Citation  of  au- 
thorities to  support  these  propositions  would  be  wholly  unnecessary. 
These  unquestioned  powers  of  a  married  woman  in  this  state  to  deal 
with  her  husband  would  seem  to  cover  all  the  powers  and  liabilities 


EEQUIREMENTS   OF  THE   CONTBACT  69 

involved  in  entering  into  or  continuing  the  relation  of  partner  with 
her  husband.  The  essential  characteristics  of  a  partnership  seem  to  be 
joint  ownership  of  property,  and  authority  of  each  partner  to  bind  the 
other  partners  by  his  acts  with  reference  to  the  partnership  property, 
and  also  to  impose  upon  the  other  partnership  liability.  As  these  re- 
lations may  be  separately  sustained  between  husband  and  wife,  we 
see  no  reason  why  they  may  not  be  collectively  created  by  entering 
into  and  carrying  on  the  relation  involved  in  the  formation  of  the  en- 
tity known  as  a  partnership.  The  only  objection  which  occurs  to  us 
is  that  involved  in  the  denial  of  the  capacity  of  husband  or  wife  to 
maintain  a  suit  in  a  court  of  law  or  equity  against  the  other,  except 
as  such  power  is  expressly  conferred,  as  decided  in  Heacock  v.  Hea- 
cock,  108  Iowa,  540,  79  N.  W.  353,  75  Am.  St.  Rep.  273,  in  which  we 
have  held  that  the  relations  of  husband  and  wife  to  each  other  are 
such  as  to  preclude  a  suit  by  the  one  against  the  other  for  breach  of 
contract  or  for  tort,  unless  it  be  for  the  preservation  or  protection 
of  the  separate  property;  and  it  is  argued  that  this  inability  of  the  wife 
to  sue  the  husband  would  preclude  the  existence  of  a  business  part- 
nership arrangement  between  them.  But  we  do  not  think  that  the 
conclusion  follows.  The  same  argument  would  lead  to  the  result  that 
a  valid  contract  cannot  be  made  between  them,  such  as  a  contract  for 
the  repayment  of  money  advanced  by  one  to  the  other;  and  yet,  as 
we  have  suggested,  that  is  not  the  law  of  this  state,  and  there  is  no 
intimation  in  the  Heacock  Case  that  it  was  intended  by  that  decision 
to  declare  that  such  contracts  are  necessarily  invalid.  It,  no  doubt, 
might  at  one  time  have  been  reasonably  argued  that,  inasmuch  as 
a  right  of  action  by  the  wife  against  the  husband  was  denied  to  her, 
she  was  not  competent  to  voluntarily  enter  into  contract  or  joint 
property  relations  with  him,  such  as  would  involve  for  their  protec- 
tion a  general  right  to  sue.  But  the  time  for  that  argument  is  past. 
The  right  to  contract  with  the  husband  is  now  so  well  established 
that  it  would  be  inexcusable  to  say  that  its  existence  is  negatived  by 
a  holding  that  public  policy  forbids  a  suit  by  the  wife  against  the  hus- 
band on  account  thereof.  It  may  well  be  suggested,  also,  that  there 
is  express  authority  for  a  suit  by  the  wife  against  the  husband  to 
recover  her  property,  or  any  right  growing  out  of  the  same  (Code, 
§  3155),  and  therefore  that,  as  the  wife  may  at  any  time  terminate 
any  business  partnership  relation  which  may  exist  with  her  husband, 
and  thereby  become  practically  a  joint  owner  only  with  him  in 
the  partnership  property,  there  would  seem  to  be  no  impossibility  of 
sustaining  an  action  by  her  against  him  for  any  right  growing  out  of 
their  joint  ownership.  In  short,  we  think  that,  in  view  of  the  statutory 
provisions  extending  the  legal  powers  and  rights  of  married  women, 
we  cannot  say  that  there  is  any  public  policy  recognized  in  this  state 
which  precludes  the  existence  of  a  business  partnership  relation  be- 
tween husband  and  wife.  None  of  the  cases  holding  that  such  relation 
cannot  exist  are  applicable  to  a  condition  of  affairs  as  to  the  wife's 


70  FORMATION   AND   CLASSIFICATION 

capacity  to  make  general  contracts,  and  own  and  control  her  own  prop- 
erty, such  as  exists  in  this  state,  except  that  of  Seattle  Board  of  Trade 
V.  Harden,  4  Wash.  2G3,  30  Pac.  87,  32  Pac.  224,  16  L.  R.  A.  530,  31 
Am.  St.  Rep.  919,  and  Haggett  v.  Hurley,  91  Me.  542,  40  Atl.  561,  41 
L.  R.  A.  362,  and  we  find  ourselves  unable  to  indorse  the  views  ex- 
pressed in  these  cases.  Our  conclusions  find  support  not  only  in  the 
cases  already  cited,  but  also  in  Belser  v.  Banking  Co.,  105  Ala.  514, 
17  South.  40;  Schlapback  v.  Long,  90  Ala.  525,  8  South.  113;  Fuller 
V.  Ferguson,  26  Cal.  546 ;  In  re  Kinkead,  3  Biss.  (U.  S.)  405,  Fed.  Cas. 
No.  7,824;  Clark  v.  Hezekiah  (D.  C.)  24  Fed.  663;  Snell  v.  Stone,  23 
On  327,  31  Pac.   663.     *     *     * 

After  considering  all  the  questions  raised  in  behalf  of  appellants, 
we  reach  the  conclusion  that  the  judgment  of  the  trial  court  should 
be  affirmed.* 


BUSH  V.  LINTHICUM. 
(Court  of  Appeals  of  Maryland,  1882.     59  Md.  344.) 

Bill  in  equity  by  Linthicum  for  the  dissolution  of  a  partnership  be- 
tween himself  and  Wier.  Wier  set  up  the  defence  of  infancy.  In  the 
Circuit  Court  Miller,  J.,  said  in  part: 

On  the  part  of  the  defendant,  it  is  strenuously  insisted  that  this  plea 
of  infancy  is  a  flat  and  absolute  bar  to  all  the  relief  asked  by  the  com- 
plainant in  his  bill,  and  that  the  same  must  be  dismissed  with  costs, 
and  the  proceedings  ended.  To  this  proposition,  thus  broadly  stated 
and  insisted  upon,  I  cannot  yield  assent.  I  concede  that  the  law  casts 
its  protection  and  guardianship  around  infants,  as  to  all  their  con- 
tracts except  those  for  necessaries,  and  that  it  is  not  competent  for 
the  court  in  this  case  to  pass  any  decree  which  will  impose  any  per- 
sonal liability  upon  the  infant  defendant  for  the  debts  of  this  firm,  or 
enforce  upon  him  any  of  the  terms  or  conditions  of  this  partnership 
contract,  or  even  compel  him  to  pay  any  of  the  costs  of  these  pro- 
ceedings. So  far  I  agree  that  his  infancy  protects  him,  but  I  am  clear- 
ly of  opinion  that  it  is  perfectly  competent  for  the  court  to  decree  a 
dissolution  of  the  partnership,  and  to  wind  up  its  afifairs  through  the 
medium  of  a  receiver — that  is,  to  collect  the  debts  due  the  firm,  sell 
its  assets,  and  apply  the  same  to  the  payment  of  its  debts.  In  doing 
this  no  wrong  is  done  to  the  infant,  no  executory  contract  is  enforced 
against  him,  and  he  is  thereby  merely  restrained  from  using  his  in- 
fancy as  a  means  of  doing  injustice  to,  or,  perhaps,  perpetrating  a 
fraud  upon,  his  co-partner.  If  the  court  has  not  the  power  to  grant 
relief  to  this  extent,  then  the  adult  will,  in  every  case,  be  placed  at  the 
mercy  of  an  infant  partner. 

*  As  to  whether  corporations  can  enter  into  partnership,  see  Merchants'  Na- 
tional Bank  v.  Wehrmann,  69  Ohio  St.  160,  68  N.  E.  1004  (1903). 


BEQUIEEMENTS  OF  THE  CONTEACT 


71 


All  the  books  upon  partnership  lay  down  the  proposition  that  an 
infant  may  become  a  partner  with  an  adult.  It  is  a  contract  not  ab- 
solutely void,  but  one  which  the  infant  may  stand  to  or  repudiate,  at 
his  election.  While  he  remains  a  partner  he  has  the  rights  and  powers 
of  a  partner.  He  has  equal  right  with  his  co-partner  to  the  posses- 
sion of  the  assets  of  the  firm,  to  collect  the  debts  due  it,  and  he  has 
also  the  power  to  contract  debts  in  the  name  of  the  firm,  which,  though 
he  may  himself  subsequently  repudiate,  and  get  rid  of  personal  re- 
sponsibility therefor,  are  still  binding  upon  his  co-partner.  Take  the 
case  of  an  adult  who  has  unfortunately  entered  into  a  partnership 
with  an  infant,  who  misrepresented  himself  at  the  time  to  be  of  full 
age.  After  a  short  time,  both  become  dissatisfied,  mutual  confidence 
is  destroyed,  and  each  becomes  odious  to  the  other.  The  infant  then 
knowing  the  security  from  responsibility  which  his  infancy  affords 
him,  and  at  the  same  time  availing  himself  of  his  powers  as  a  partner, 
and  seeking  to  defraud  and  injure  his  co-partner,  proceeds  to  get 
possession  of  the  partnership  assets,  to  sell  them,  and  to  put  the  pro- 
ceeds in  his  pocket,  and  goes  on  contracting  debts  which  he  knows  he 
is  not  responsible  for,  but  which  he  also  know^s  will  work  the  absolute 
bankruptcy  of  his  co-partner.  Is  it  possible  that  a  court  of  equity  has 
no  power,  at  the  instance  of  the  adult  partner,  to  lay  its  hands  upon 
such  a  concern,  stay  the  consummation  of  his  ruin,  and  release  the  tie 
which  binds  him  to  the  body  of  such  a  death?  In  my  opinion  there 
is  no  such  lack  of  remedial  power  in  courts  of  equity,  and  infancy 
cannot  be  availed  of  as  a  bar  to  such  relief.  If  authority  be  needed 
in  support  of  this  position,  it  seems  to  me  that  it  is  abundantly  sus- 
tained by  the  decision  of  the  chancellor  in  the  case  of  Kitchen  v.  Lee, 
11  Paige  (N.  Y.)  107,  42  Am.  Dec.  101. 

Tt  is  thereupon  adjudged  and  ordered  that  the  plea  of  infancy  filed 
in  this  case  by  the  defendant  be  and  the  same  is  hereby  overruled  and 
rejected!  in  so  far  as  it  is  sought  to  be  used  as  a  bar  to  so  much  of  the 
relief  prayed  by  the  bill  as  asks  for  a  dissolution  of  the  partnership, 
the  granting  of  the  injunction  prayed  for,  and  the  appointment  of  a 
receiver  to  take  charge  of  and  wind  up  the  affairs  of  the  firm  by  col- 
lecting the  debts  due  to  it,  by  taking  possession  of  and  selling  its  as- 
sets, and  by  applying  the  same  to  the  payment  of  its  debts. 

On  appeal  to  the  Court  of  Appeals,  the  foregoing  opinion  was  ap- 
proved, and  order  affirmed. 


72  FORMATION  AND  CLASSIFICATION 


2.  Consideration 


COLEMAN  V.  EYRE. 

(Court  of  Appeals  of  New  York,  1871.    45  N.  Y.  38.) 

Rapallo,  J.**  The  plaintiff  was  interested  to  the  extent  of  one- 
fourth  in  the  profits  or  losses  of  a  shipment  of  coffee  undertaken  by 
him  jointly  with  other  parties.  After  the  adventure  had  been  begun,  and 
before  the  coffee  had)  reached  its  port  of  destination,  it  was  mutually 
agreed  between  the  plaintiff  and  the  defendant  that  the  latter  should 
have  one-half  interest  in  the  plaintiff's  one-fourth  interest  in  the  ad- 
venture. The  speculation  resulted  in  a  loss,  and  this  action  was  brought 
to  recover  one-half  of  the  plaintift''s  proportion  of  such  loss.  It  is 
now  claimed  on  the  part  of  the  defendant  that  no  valid  contract  was 
made  between  him  and  the  plaintiff;  that  inasmuch  as  the  plaintiff 
had  embarked  in  the  speculation  before  and  without  reference  to  any 
arrangement  with  the  defendant,  and  the  defendant  had  not  done  or 
contributed  anything  to  aid  in  the  joint  enterprise,  there  was  no 
partnership,  and  no  consideration  for  the  undertaking  of  the  plaintiff 
to  give  him  one-half  of  the  profits;  that  therefore  the  defendant  could 
not  have  enforced  payment  of  half  the  profits  if  the  adventure  had 
been  successful,  and  consequently  no  agreement  on  his  part  to  con- 
tribute to  the  loss  can  be  implied. 

This  argument  assumes  that  the  agreement  was  simply  that  the  de- 
fendant should  have  one-half  of  the  profits  which  the  plaintiff  might 
make  out  of  the  adventure  in  case  it  should  prove  successful.  But 
such  was  not  the  agreement  proved.  The  agreement  was  that  the  de- 
fendant should  share  with  the  plaintiff  in  the  adventure,  and  it  seems  to 
have  been  clearly  understood  that  he  should  participate  in  the  result, 
whether  it  should  prove  a  profit  or  a  loss.  That  it  might  result  in  a 
loss  was  contemplated  by  the  parties.  There  is  evidence  in  the  case 
that  the  possibility  of  that  event  was  the  subject  of  conversation  be- 
tween them  at  the  time  of  making  the  contract;  that  the  hope  was 
then  expressed  that  the  plaintiff  would  not  be  compelled  to  call  upon 
the  defendant  to  contribute  to  a  loss;  and  that  afterward,  when  they 
did  call  upon  him  to  contribute,  he  did  not  dispute  his  liability,  but 
sought  to  reduce  the  amount  by  claiming  a  portion  of  the  plaintiff's 
commissions. 

The  evidence  fully  justified  a  finding  that,  in  consideration  of  the 
agreement  by  the  plaintiff  to  account  to  the  defendant  for  half  the 
profits  in  case  of  success,  the  defendant  undertook  to  bear  half  the 
loss  in  the  contrary  event;  and  the  intendment  is  that  the  referee 
did  so  find.    Indeed,  such  is  a  proper  construction  of  the  actual  find- 

6  Part  of  the  opinion  is  omitted. 


BEQUIREMENT8   OF  THE   CONTRACT  73 

ing.  It  is  a  clear  case  of  mutual  promises;  and  the  oblip^ation  of 
each  party  was  a  good  consideration  for  that  of  the  other.  Briggs  v. 
Tillotson,  8  Johns.  304.     *     *     * 

The  agreement  was  not  within  the  statute  of  frauds.  It  was  not 
an  agreement  for  the  sale  of  any  personal  property  or  chose  in  action, 
but  an  executory  agreement,  whereby  one  party  undertook  to  bear 
one  part  of  a  possible  loss  in  consideration  of  a  share  of  an  expected 
profit. 

The  judgment  of  reversal  and  order  granting  a  new  trial  should  be 
reversed,  and  the  judginent  for  the  plaintiff  entered  on  the  report  of 
the  referee  should  be  affirmed,  with  costs. 

Order  of  General  Term  reversed. 


3.  Formalities — Statute  of  Frauds 


MARSH  V.  DAVIS  et  al. 
(Supreme  Court  of  Kansas,  1885.    33  Kan.  32G.  6  Pac.  612.) 

HoRTON,  C.  J.®  This  was  an  action  for  the  dissolution  of  a  partner- 
ship, and  for  an  accounting.  The  evidence  conduced  to  show :  That 
prior  to  March  12,  1875,  there  existed  at  lola,  in  this  state,  a  firm,  com- 
posed of  W.  E.  Davis,  George  S.  Davis,  and  Elias  Bruner,  engaged  in 
the  milling  business  under  the  name  of  W.  E.  Davis  &  Co.  That  the 
firm  were  then  the  owners  of  a  grist  and  saw  mill,  and  certain  per- 
sonal property,  and  tracts  of  land,  all  used  for  partnership  purposes, 
and  in  connection  with  the  mill.  That  on  March  12,  1875,  it  was 
verbally  agreed  between  the  members  of  the  firm  that  the  plaintiff 
should  be  taken  into  the  partnership  as  a  member  thereof,  on  the  fol- 
lowing terms:  All  the  property  of  the  partnership  was  valued  at 
$12,000;  each  partner  was  to  have  an  equal  share  therein;  the  plaintiff 
was  to  pay  $3,000,  but  it  was  understood  "that  he  was  to  have  his 
share  in  the  partnership  without  interest  on  this  sum  until  such  a 
time  as  the  proceeds  of  the  mill  or  business  made  it."  That  it  was 
further  agreed  among  all  the  members  that  the  partnership  should  be 
consummated  by  an  entry  in  the  journal  and  ledger  books,  setting 
forth  that  the  parties  had  associated  themselves  together  as  partners, 
and  the  amounts  invested  by  each  member  were  to  be  shown  by  his 
credits  on  the  ledger.  That  the  entries  upon  the  journal  and  ledger 
were  made  in  accordance  with  this  agreement.  That  on  March  13. 
1875,  the  plaintiff  was  permitted  to  go  in  possession  jointly  with  the 

•  Part  of  the  opinion  is  omitted. 


74  FORMATION  AND  CLASSIFICATION 

Other  parties.  That  all  the  parties  acted  on  the  agreement  until  about 
the  middle  of  November,  1882.  That  the  partnership  after  March  13, 
1875,  continued  to  do  business  under  the  firm  name  of  W.  E.  Davis 
&  Co,  That  it  was  the  particular  duty  of  plaintiff  to  keep  the  books 
of  the  firm,  and  look  after  such  other  business  as  he  could.  That  at 
the  formation  of  the  new  partnership  on  March  12,  1875,  the  grist- 
mill was  somewhat  dilapidated,  and  was  not  making  good  flour.  That 
the  sawmill  was  very  old,  and  pretty  well  worn  out.  That  W.  E. 
Davis  and  G.  S.  Davis  were  brothers.  That  the  wife  of  plaintiff 
was  the  sister  of  W.  E.  and  G.  S.  Davis,  and  also  the  sister  of  the  wife 
of  Elias  Bruner.  That  the  plaintiff  kept  the  books,  and  also  collected 
for  the  firm,  borrowed  money,  brought  suits  against  different  parties, 
and  did  almost  everything  that  was  to  be  done  to  further  the  interests 
of  the  firm.  That  the  defendants  allowed  him  to  hold  himself  out  to 
the  public  as  a  partner,  to  sign  the  firm  name  to  negotiable  paper, 
subscriptions  to  public  enterprises,  and  officials'  bonds,  to  bring  suits, 
and  defend  suits,  as  a  partner.  That  land  was  condemned  for  a  mill- 
dam.  That  plaintiff  paid  the  money  therefor  from  the  proceeds  of 
the  business.  That  a  dam  was  constructed  across  the  Neosho  river, 
where  the  mill  is  now  located.  That  the  old  mill  was  taken  down  and 
moved  to  the  new  location  in  the  spring  of  1880.  That  a  new  mill 
was  made  out  of  it;  that  is,  the  old  mill  was  rebuilt,  and  considerable 
new  machinery  put  in  it.  That  the  expense  of  doing  this  was  over 
$4,000.  That  about  $1,500  was  borrowed.  That  the  balance  of  the 
money  was  paid  from  the  proceeds  of  the  mill.  That  the  defendants 
accepted  $110  they  owed  him  prior  to  March  12,  1875,  as  part  pay- 
ment of  the  $3,000,  and  used  it  in  the  partnership  business.  That 
the  plaintiff  also  paid  between  $50  and  $60  upon  the  purchase  price 
of  his  interest  in  the  firm  after  he  became  a  member  thereof.  That 
during  the  partnership  he  drew  out  $1,900.  That  about  the 
middle  of  November,  1882,  plaintiff  was  excluded  by  the  defend- 
ants, without  any  good  reason  or  excuse,  from  further  partic- 
ipation in  the  partnership,  and  was  forbidden  by  the  other  partners 
from  exercising  any  rights  or  control  over  the  partnership  business 
or  property.  That  at  the  time  of  such  exclusion  the  property  of  the 
firm  was  worth  about  $30,000,  having  increased  from  $12,000  in  1875 
to  $30,000  in  1882. 

After  the  introduction  of  all  the  evidence,  on  the  part  of  the  plain- 
tiff, that  the  court  would  admit,  the  defendants  interposed,  and  filed 
a  demurrer  thereto,  upon  the  ground  that  no  cause  of  action  was 
proved.  The  court  sustained  the  demurrer,  and  plaintiff  excepted. 
This  is  the  important  ruling  complained  of.  To  sustain  this  ruling, 
the  defendants  contend  that  the  contract  of  March  12,  1875,  being 
for  an  interest  in  real  estate,  is,  as  to  such  real  estate,  void,  under 
the  statute  of  frauds;  and  that,  being  void  as  to  the  real  estate,  it  is 
also  void  as  to  the  personal  property,  and  the  right  to  become  a  part- 
ner, which,  as  defendants  allege,  were  parts  of  an  entire  and  indivis- 


REQUIREMENTS    OF   THE   CONTRACT  75 

ible  contract.  The  proposition  is  conceded  by  the  defendants,  that 
where  real  estate  is  purchased  with  partnership  funds,  for  partnership 
purposes,  after  the  partnership  has  been  formed,  such  real  estate  is 
to  be  treated  as  part  of  the  partnership  property,  and,  as  a  conse- 
quence, personal  estate.  It  is  also  well  settled  "that  parol  testimony 
is  admissible  to  prove  a  resulting  trust  in  relation  to  real  estate,  and 
that  land  purchased  in  the  name  of  one  partner,  for  the  use  and  benefit 
of  the  firm,  raises  a  resulting  trust  which  will  be  enforced."  Story, 
Eq.  Jur.  §§  1206,  1207;  Scruggs  v.  Russell,  1  McCahon,  39. 

These  principles  are  applicable  to  this  case  and  decisive  against  the 
defendants.  When  the  plaintiff  was  taken  into  the  partnership  of  W. 
E.  Davis  &  Co.,  on  March  12,  1875,  as  the  firm  was  then  in  existence, 
and  in  the  possession  of  real  estate  purchased  for  partnership  pur- 
poses, and  then  appropriated  to  those  purposes,  such  real  estate  was 
partnership  property,  and  the  plaintiff,  by  acquiring  an  interest  in 
the  partnership  by  verbal  contract,  and  thereafter  having  acted  under 
the  contract  as  one  of  the  partners,  with  the  consent  of  all  the  mem- 
bers, is  not  to  be  deprived  of  his  interest  in  the  partnership,  either  as 
to  the  personal  property  or  real  estate,  on  account  of  the  statute  of 
frauds.  The  cases  establish  that  a  partnership  in  any  branch  of  trade 
or  business  may  be  shown  by  parol  as  an  existing  fact,  and  that  what- 
ever real  estate  is  held  for  the  purpose  of  such  business  is  regarded 
as  an  incident  thereto,  and  the  law  will  imply  a  trust  in  favor  of  the 
partnership,  however  the  lands  be  held  in  law.  For  an  illustration: 
If  a  mercantile  firm  carrying  on  the  business  of  buying  and  selling 
goods,  and  as  an  incident  to  the  business  owning  and  having  in  posses- 
sion the  building  in  which  the  business  is  transacted,  takes  into  the 
partnership  another  person,  who  purchases  an  interest  in  the  partner- 
ship, and,  as  a  partner,  is  let  in  possession  of  the  partnership  proper- 
ty, and  all  the  parties  act  on  the  agreement,  such  person  is  not  to  be 
deprived  of  his  right  in  the  real  estate  held  by  the  firm  at  the  time  he 
became  a  member  thereof  because  his  agreement  with  the  other  part- 
ners was  not  in  writing.  If  the  partnership  be  proved,  that  will  suf- 
fice to  establish  a  partnership  trust  in  the  land  intended  and  treated 
by  all  the  partners  as  partnership  property,  however  the  land  be  held ; 
and  this  will  not  be  incompatible  with  the  conditions  of  the  statute 
of  frauds.  Scruggs  v.  Russell,  supra;  1  Lindl.  Partn.  87-90;  Bird 
V.  Morrison,  12  Wis.  138;  Borden  v.  Whaling  Co.,  10  Cush.  (Mass.) 
458;   Browne,  Frauds,  §§  259-263. 

We  think  it  is  immaterial  whether  the  real  estate  in  this  case  was 
bought  with  partnership  funds,  for  partnership  purposes,  after  the 
formation  of  the  partnership,  or  whether  a  part  of  the  real  estate  was 
put  into  the  firm  as  partnership  property  at  the  formation  of  the  new 
firm  on  March  12,  1875,  if  the  parties  have  acted  on  the  agreement 
and  become  partners.  In  such  case,  the  statute  of  frauds  ceases  to 
be  applicable.  Smith  v.  Tarlton,  2  Barb.  Ch.  (N.  Y.)  336;  Eissell  v. 
Harrington,  18  Hun  (N.  Y.)  81.     »     *     * 


76  FORMATION  AND  CLASSIFICATION 

The  judgment  of  the  district  court  will  be  reversed,  and  the  cause 
remanded  for  further  proceedings  in  accordance  with  the  views  here- 
in expressed.' 


ni.  Subject-Matter  » 


THE  QUEEN  v.  ROB  SON. 
(Crown  Cases  Reserved,  1885.    L.  R.  16  Q.  B.  Div.  137.) 
See,  ante,  p.  49,  for  a  report  of  the  case. 


CENTRAL  TRUST  &  SAFE  DEPOSIT  CO.  et  al.  v.  RESPASS. 

(Court  of  Appeals  of  Kentucky.  1902.    112  Ky.  606,  66  S.  W.  421,  56  L.  R.  A. 
479,  99  Am.  St.  Rep.  317.) 

Action  by  Jerome  B.  Respass  against  the  executors  of  Solomon  L. 
Sharp  for  a  settlement  of  partnership  accounts.  Judgment  granting 
relief  sought,  and  defendants  appeal. 

Du  Relle,  J."  Jerome  B.  Respass  and  Solomon  L.  Sharp  appear 
to  have  formed  a  copartnership,  extending  over  several  years,  in  the 
business  of  managing  a  racing  stable,  and,  in  connection  with  that 
business,  were  engaged  in  "bookmaking,"  or  making  wagers  upon  race 
horses.  They  seem,  also,  to  have  had  an  interest  in  a  pool  room  at 
Newport.  For  the  book  business  a  separate  account  was  kept  by  a 
cashier  employed  for  the  purpose.  They  had  no  regular  time  for  mak- 
ing settlements  with  each  other,  but  at  various  times,  when  requested, 
the  cashier  made  out  statements  of  the  booking  business  of  the  firm. 
It  appears  from  the  testimony  of  Bernard,  the  cashier,  that  Sharp  in 
November,  1897,  handed  him  $4,724,  and  told  him  to  deposit  it  to 
his  (Sharp's)  credit  in  the  Merchants'  National  Bank  of  Cincinnati, 
Ohio,  which  was  done.  Sharp  appears  to  have  stated  at  the  time  that 
one-half  of  this  fund  belonged  to  Respass.     It  appears  further  that 

T  "A  contract  forming  a  partnership  to  be  continued  beyond  one  year  is 
within  the  section  of  the  statute  of  frauds  which  provides  that  every  agree- 
ment which  by  its  terms  is  not  to  be  performed  in  one  year  from  the  making 
thereof  is  void  unless  it  is  in  writing,  and  a  partnership  so  formed  is  a  part- 
nership at  will.  Morris  v.  Peckham,  51  Conn.  128  (1883) ;  Williams  v.  Jones, 
5  B.  &  C.  108  (1826) ;  Jones  v.  McMichael,  12  Rich.  Law  (S.  C.)  176  (1859) ; 
Essex  V.  Essex,  20  Beav.  442  (18.>5) ;  Burdon  v.  Barkus,  3  Giff,  412  (1861) ; 
Id.,  4  De  G.,  F.  &  J.  42,  47,  50  (1862) ;  Reed's  Stat.  Fr.  §  191 ;  Bind,  on  Part. 
(25th  Eng.  Ed.)  SO,  81."  Per.  Follett,  C.  J.,  in  Wahl  et  al.  v.  Barnum  et  al., 
116  N.  Y.  87,  97.  22  N.  E.  280,  5  L.  R.  A.  623  (1889).  But  see  Shropshire  v. 
Adiims,  40  Tex.  Civ.  App.  339,  89  S.  W.  448  (1905),  contra. 

8  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  29,  30. 

»  Part  of  the  opinion  is  omitted. 


SUBJECT-MATTEB  77 

this  was  the  "bank  roll"  of  the  bookmaking  concern,  in  which  each 
partner  had  an  equal  interest.  At  the  same  time  he  remarked  that 
Respass  had  paid  out  $1,500  for  the  firm,  and  that  he  would  see  him 
in  a  few  days  and  settle  with  him.  Sharp  died  suddenly,  before  any 
such  settlement  was  made.  The  money  in  the  bank  roll  was  on 
deposit  to  Sharp's  credit.  The  racing  business  of  the  firm  seems  to 
have  been  almost  entirely  in  the  hands  of  Respass,  who  attended  to 
the  horses,  trained  them,  entered  them  in  races,  and  at  times  wagered 
on  them  for  the  benefit  of  the  firm,  which  divided  the  profits  or  shared 
the  losses,  as  the  case  might  be.  Respass  brought  suit  against  Sharp's 
executors  for  a  settlement  of  the  partnership  accounts.  The  horses 
in  the  racing  stable  were  sold  under  order  of  court,  and  various  claims 
against  the  fund  in  court  were  made  by  Respass  for  expenses  incurred 
in  keeping,  shoeing,  clipping,  training,  and  caring  for  the  various 
horses,  as  well  as  for  entering  certain  of  the  horses  in  stakes,  and  for 
wagers  paid  upon  the  horses  "Fair  Deceiver"  and  "Shannon."  The 
business  of  breeding,  training,  and  racing  horses  for  purses  is  legal. 
The  partnership  for  that  purpose  can  undoubtedly  be  settled  by  the 
chancellor.  The  only  question  presented  as  to  this  matter  is  upon 
the  correctness  of  the  settlement  made. 

[After  allowing  certain  items  for  training  and  keeping  the  horses, 
and  entering  them  for  races:]  Another  item  to  which  exception  is 
taken  consists  of  $700;  being  the  amount  of  two  bets  made,  lost,  and 
paid  by  Respass  on  the  horses  "Fair  Deceiver"  and  "Shannon."  In 
view  of  the  statutory  law  of  Kentucky  (see  section  1955  et  seq.,  Ky. 
St.),  we  are  unable  to  see  how  any  legal  consideration  can  exist  for  a 
promise  to  reimburse  to  a  partner  any  portion  of  any  sum  lost  upon  a  bet 
on  a  horse  race.  In  Lyons  v.  Hodgen,  90  Ky.  280,  13  S.  \V.  1076,  it 
was  held,  in  an  opinion  by  Chief  Justice  Lewis,  that  this  statute,  pro- 
viding that  "every  contract,  conveyance,  transfer  or  assurance,  for  the 
consideration,  in  whole  or  in  part,  of  money,  property  or  other  thing 
won,  lost  or  bet  in  any  game,  sport,  pastime,  wager,  or  for  the  con- 
sideration of  money,  property  or  other  thing  lent  or  advanced  for 
the  purpose  of  gaming  or  lent  or  advanced  at  the  time  of  any  betting, 
gaming  or  wagering  to  a  person  then  actually  engaged  in  betting,  gani- 
ing  or  wagering,  shall  be  void" — applied  to  dealing  in  "futures"; 
that  the  process  by  which  the  money  was  won  or  lost  was  a  wager, 
within  meaning  of  the  statute,  which  was  designed  to  embrace  every 
species  of  wagering,  whether  practiced  at  the  time  the  statute  was  en- 
acted, or  since  devised.  And  in  the  opinion  by  the  same  judge  in 
Sharp  v.  Com.  (from  Kenton  county)  93  Ky.  574,  35  S.  W.  553,  it 
was  held  that  betting  upon  horse  races  was  gaming  and  illegal. 
We  think  it  is  well  settled  that  a  man  who  lends  money  to  another, 
to  be  then  bet  on  a  horse  race,  cannot  recover  it  back.  And  so 
it  would  seem  that  if  A.  agrees  with  B.  that  B.  shall  advance  the 
money,  and  himself  bet  upon  a  horse  race  for  their  joint  account,  no 
action  will  lie  by  B.  to  compel  A.  to  respond  for  his  share  of  a  bet 
which  is  lost.     The  statement  of  this  proposition  seems  to  decide  it. 


78  FORMATION  AND  CLASSIFICATION 

It  is  a  contract  for  an  illegal  venture.  The  whole  contract  is  illegal. 
>Jo  right  of  action  can  arise  out  of  that  contract.  This  is  exactly 
the  position  of  Respass  as  to  the  two  bets.  He  advanced  the  money 
to  make  them  for  himself  and  Sharp,  relying  upon  Sharp's  express  or 
implied  agreement  to  pay  half  the  losses  if  loss  should  be  incurred. 
Such  a  contract  cannot  be  enforced  in  this  state. 

A  closer  question  is  presented  by  the  claim  for  a  divison  of  the 
"bank  roll."  This  $4,724  was,  as  found  by  the  chancellor,  earned  by 
the  firm  composed  of  Respass  and  Sharp  in  carrying  on  an  illegal 
business— that  of  "bookmaking"— in  the  state  of  Illinois.  But  though 
this  amount  had  been  won  upon  horse  r^ces  in  Chicago,  it  is  claimed 
that,  though  secured  illegally,  "the  transaction  has  been  closed,  and 
the  appellee  is  only  seeking  his  share  from  the  realized  profits  from 
the  illegal  contracts,  if  they  are  illegal."  On  the  other  hand,  it  is  claim- 
ed for  appellants  that,  as  to  the  bank  roll,  this  proceeding  is  a  bill  for  an 
accounting  of  profits  from  the  business  of  gambling. 

It  does  not  seem  to  be  seriously  contended  that  the  business  of 
"bookmaking,"  whether  carried  on  in  Chicago  or  in  this  common- 
wealth, was  legal,  for  by  the  common  law  of  this  country  all  wagers 
are  illegal.     *     *     * 

We  conclude  that  in  this  country,  in  the  case  of  a  partnership  in  a 
business  confessedly  illegal,  whatever  may  be  the  doctrine  where  there 
has  been  a  new  contract  in  relation  to,  or  a  new  investment  of,  the 
profits  of  such  illegal  business,  and  whatever  may  be  the  doctrine  as 
to  the  rights  or  liabilities  of  a  third  person  who  assumes  obligations 
with  respect  to  such  profits,  or  by  law  becomes  responsible  therefor, 
the  decided  weight  of  authority  is  that  a  court  of  equity  will  not  enter- 
tain a  bill  for  an  accounting. 

The  judgment  of  the  chancellor  is  therefore  reversed,  and  the  cause 
remanded,  with  directions  to  enter  a  judgment  in  accordance  with  this 
opinion. 


IV.  Joint-Stock  Companies 


CARTER  et  al.  v.  McCLURE  et  al. 

(Supreme  Court  of  Tennessee,  1897.    98  Tenn.  109,  38  S.  W.  585,  36  L.  R.  A. 

282,  60  Am.  St.  Rep.  842.) 

Beard,  J.  The  bill  in  this  cause  was  filed  by  complainants,  as  credit- 
ors of  McClure,  Lucas  &  Co.,  seeking  to  hold  the  defendants  liable  for 
the  debts  of  that  concern,  upon  the  theory  that  it  was  a  commercial 
firm,  of  which  defendants  were  members,  at  the  time  of  the  creation 
of  these  debts.  The  facts,  so  far  as  they  are  important  in  the  de- 
cision of  this  case,  and  as  they  have  been  found  by  the  Court  of  Chan- 

10  I'or  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  34. 


JOINT-STOCK    COMPANIES  79 

eery  Appeals,  are:  That  these  defendants,  with  others  who  are  not 
sued,  all  members  of  an  alliance  lodge  in  the  town  of  Hunlland,  in  this 
state,  entered  into  an  agreement  among  themselves  to  raise  a  sum  of 
money  which,  it  was  assumed,  would  be  sufficient  to  establish  a  co- 
operative store  in  that  place.  This  agreement  was  reduced  to  writ- 
ing, and  the  names  of  the  parties  in  interest  were  by  them  affixed  to 
it,  and  over  against  his  signature  was  placed  the  amount  which  each 
subscriber  obligated  himself  to  contribute  to  this  joint  enterprise.  This 
agreement  is  in  words  and  figures  following,  to  wit:  "Huntland, 
Tenn.,  Dec.  21,  18S8.  We,  the  undersigned,  agree  to  pay  to  the  di- 
rectors, to  be  elected,  the  sum  annexed  to  our  respective  names,  by 
the  first  of  January,  1SS9,  for  the  purpose  of  establishing  a  co-opera- 
tive store  at  Huntland,  Tennessee.  We  further  agree  that  the  said 
money  remain  in  the  business  for  at  least  five  years  from  beginning, 
unless  two-thirds  of  the  stockholders  agree  to  discontinue  the  busi- 
ness in  a  shorter  time.  We  further  agree  that  three  of  the  stock- 
holders be  elected  annually  as  directors,  to  have  full  control  of  the 
stock  hereunto  subscribed.  It  is  further  agreed  that  the  directors 
act  in  conjunction  with  R.  W.  McClure,  who  is  a  stockholder  to  the 
amount  of  $2,050,  and  who  is  to  be  the  principal  salesman,  and  in 
the  transaction  of  all  business  between  the  said  IMcClure  and  directors, 
the  directors  are  to  be  regarded  collectively  or  as  a  unit,  and  the  said 
McClure  as  a  unit."  After  the  execution  of  this  paper,  the  three  di- 
rectors provided  for  in  it  were  duly  chosen,  and  into  their  hands  the 
subscribers  paid  the  several  sums  they  had  agreed  to  contribute. 
These  sums,  aggregating  $590,  were  turned  over  by  the  directors  to 
Mr.  McClure,  who,  adding  the  amount  of  $2,050,  which  he  had  agreed 
to  place  in  the  venture,  purchased  a  stock  of  goods,  and  opened  up  a 
co-operative  store  in  the  name  of  R.  W.  McClure  &  Co.,  this  being 
the  business  name  agreed  upon  by  McClure  and  the  three  directors. 
No  incorporation  ever  took  place,  nor  was  such  ever  intended  by  these 
parties.  The  main  purpose  of  the  defendants,  in  entering  into  this 
business,  was  to  avoid  what  they  deemed  to  be  the  extortion  there- 
tofore practiced  upon  them  in  the  sale  of  goods  by  the  merchants 
of  the  country.  While  not  embodied  in  their  writing,  yet  one  of  the 
terms  of  the  contract,  and  the  one  which  chiefly,  if  not  altogether,  in- 
duced all  the  subscribers  (save,  no  doubt,  McClure)  to  become  in- 
terested in  this  enterprise,  was  that  they  were  to  purchase  such  goods 
as  they  might  require  from  the  stock  in  this  store  at  a  profit  not  ex- 
ceeding 10  per  cent,  above  cost;  and  these  directors  were  chosen  as 
their  representatives,  especially,  to  look  after  McClure,  who  was  the 
largest  shareholder,  as  well  as  manager,  and  see  that  he  kept  faith 
with  the  subscribers  in  this  matter.  While  the  defendants,  styling 
themselves  in  their  written  agreement  as  "stockholders,"  took  no 
active  personal  control  of  the  concern,  yet  they  manifested  a  lively 
interest  in  its  success.  In  addition  to  giving  it  the  benefit  of  their 
own  patronage,  they  were  zealous  in  commending  it  to  their  neighbors. 


80  FORMATION  AND  CLASSIFICATION 

At  the  end  of  the  first  year  one  IMosely  desired  to  purchase  an  inter-' 
est  in  the  business.  He,  however,  was  not  a  member  of  the  "alUance," 
and,  organized  as  this  enterprise  was,  in  Hne  with  or  under  the  in- 
spiration of  that  movement,  it  was  necessary  that  he  become  such 
before  he  could  be  allowed  to  make  such  purchase.  In  order  to  qual- 
ify him  to  this  end,  the  rules  of  the  "lodge"  to  which  these  defendants 
belonged  were  suspended,  and  at  one  meeting  he  was  admitted  to 
the  privilege  of  full  fellowship  with  them.  He  contributed  $2,000  to 
the  capital  of  the  concern,  and  its  name  was  changed  to  McClure, 
Mosely  &  Co.  At  the  end  of  another  term  of  12  months  Mosely  sold 
out  his  interest  to  one  Lucas  and  thereafter  the  enterprise  was  con- 
ducted in  the  name  of  JNIcClure,  Lucas  &  Co.,  until  insolvency  over- 
whelmed it  with  disaster.  The  claims  of  complainants  accrued  during 
the  existence  of  and  against  this  latter  concern.  In  addition  to  these 
changes  in  the  organization  of  and  style  of  the  business,  two  deaths 
occurred  among  the  original  subscribers — one  of  them  before,  and 
the  other  after,  the  creation  of  these  debts.  This  latter  death,  how- 
ever, can  in  no  way  affect  this  controversy,  and  will,  therefore,  not 
be  further  noticed.  Upon  this  state  of  facts,  it  is  insisted  for  the  de- 
fendants— First,  that  this  undertaking  was  in  no  sense  a  partnership, 
and  that  they  did  not  sustain  the  relation  of  partners  to  either  R. 
W.  McClure  &  Co.,  Mosely,  McClure  &  Co.,  or  McClure,  Lucas  & 
Co.;  secondly,  if  however,  they  are  mistaken  in  this  broad  proposi- 
tion, then  that  they  were  only  partners  in  the  firm  of  R.  W.  McClure 
&  Co.,  and  that  all  partnership  relation  and  liability,  on  their  part, 
were  terminated  or  dissolved  by  the  various  changes  already  adverted 
to,  and  long  prior  to  the  creation  of  complainants'  debts.  The  chan- 
cellor and  the  Court  of  Chancery  Appeals  held  both  these  contentions 
against  the  defendants,  and  the  case  is  now  before  us  on  an  appeal 
from  the  decree  of  this  last-named  court. 

1.  Were  those  parties  engaged  in  a  partnership  enterprise?  All  of 
the  defendants  earnestly  disclaim  any  purpose  of  entering  upon  such 
an  undertaking.  While,  as  has  been  stated,  the  prime  motive  of  these 
parties  was  to  organize  a  mercantile  establishment  where  their  various 
needs  would  be  supplied  at  reasonable  figures,  yet  they  confess  that, 
outside  of  this,  they  expected  to  share  in  any  profits  earned  by  it  in 
proportion  to  the  respective  amounts  contributed  by  them.  These 
amounts  were  small,  yet  they  were  to  serve  as  a  basis  for  such  distri- 
bution of  profits.  It  is  no  doubt  true  that  the  defendants  did  not  con- 
template a  partnership,  and  each  supposed  that  he  was  simply  taking  a 
share  in  a  joint-stock  enterprise,  in  which  all  he  risked  was  the  small 
sum  paid  for  such  share;  yet  it  is  for  the  law  to  determine,  on  the 
facts  already  given,  whether  a  partnership  was  created,  with  all  its 
attending  liabilities.  In  Mallory  v.  Oil  Works,  86  Tenn.  598,  8  S. 
W.  396,  is  quoted  approvingly  the  definition  of  a  partnership  as  giv- 
en by  Judge  Story.  "A  partnership,"  says  the  former  writer,  "is  usu- 
ally defined  to  be  a  voluntary  contract  between  two  or  more  competent 


JOINT-STOCK  COMPANIES  81 

persons  to  place  their  money,  effects,  labor,  and  skill,  or  some  or  all  of 
them,  in  lawful  commerce  or  business,  with  the  understanding-  that 
there  shall  be  a  communion  of  the  profits  thereof  between  them."  Story, 
Partn.  §  2.  The  facts  found  by  the  Court  of  Chancery  Appeals,  a  gen- 
eral outline  of  which  is  given  above,  disclose  the  constituent  elements 
of  a  partnership  as  required  by  this  definition.  It  is  a  case  where 
these  parties  have  embarked  their  money  "in  lawful  commerce, 
*  *  *  with  the  understanding  that  there"  should  be  a  division 
of  profits  earned.  In  addition  to  this,  they  have  taken  a  firm  name, 
and  thus  have  advertised  themselves  to  the  world  as  a  commercial 
partnership.  Calling  their  contributions  to  the  capital  of  this  busi- 
ness a  "subscription  for  stock,"  and  taking  certificates  for  their  pay- 
ments from  the  company  as  a  joint-stock  company,  it  not  being  incorpo- 
rated, cannot  alter  their  liability.  "There  is  no  intermediate  associa- 
tion, or  form  of  organization,  between  a  corporation  and  a  partner- 
ship, known  to  the  common  law,  and,  unless  otherwise  provided  by 
statute,  as  is  the  case  in  England  and  New  York,  a  joint-stock  compa- 
ny is  treated  and  has  the  attributes  of  a  common  partnership."  1  Bates. 
Partn.  §  72.  And  Judge  Story  says  that,  "in  joint-stock  and  other 
large  companies,  which  are  not  incorporated,  but  are  a  simple,  although 
an  extensive,  partnership,  their  liabilities  to  third  persons  are  gener- 
ally governed  by  the  same  rules  and  principles  which  regulate  com- 
mercial partnerships."  And  such  has  been  the  conclusion  of  the  courts 
wherever  the  character  of  joint-stock  companies  similar  to  the  one  in 
question  has  been  passed  upon,  so  far  as  our  examination  has  dis- 
closed. At  least  such  was  the  holding  in  Hodgson  v.  Baldwin,  65 
111.  532;  Kenyon  v.  Williams,  19  Ind.  44;  Manning  v.  Gasharie,  27 
Ind.  399;  Beaman  v.  Whitney,  20  Me.  413;  Farnum  v.  Patch,  60 
N.  H.  294,  49  Am.  Rep.  313.  The  Supreme  Court  of  New  Hampshire, 
in  this  last-cited  case,  have  delivered  an  able,  exhaustive  opinion  upon 
the  law  of  partnership  as  it  applies  to  an  association  like  the  one  in 
question,  and  we  content  ourselves  with  what  we  have  already  said 
and  by  making  special  reference  to  that  opinion.  In  the  light  of  these 
authorities,  we  think  there  can  be  no  doubt  that  these  parties  were 
partners  in  the  firm  of  R.  W.  McClure  &  Co. 

2.  We  think  it  equally  clear,  on  the  facts  of  this  case,  and  in  view 
of  the  legal  principles  applicable  to  them,  that  there  was  no  termina- 
tion of  the  partnership  enterprise,  resulting  from  the  changes  oc- 
curring during  its  progress,  by  the  introduction  and  subsequent  with- 
drawal of  Mosely,  and  the  accession  of  Lucas  or  his  capital  to  it,  or 
the  death  of  one  of  the  original  subscribers  intermediate  between  the 
start  of  this  business  and  the  final  insolvency  of  McClure,  Lucas  & 
Co. ;  that,  through  all  these  changes,  the  defendants'  relations  re- 
mained as  fixed  by  themselves  in  the  beginning;  and  that  they  are 
liable  as  partners  for  the  debts  sought  to  be  enforced  in  this  cause. 
This  conclusion  we  rest  on  two  grounds :  First.  It  is  found  by  the 
Court  of  Chancery  Appeals  to  be  a  fact  tliat  these  defendants  were 

GlUM.rAUT. — 6 


82  FORMATION  AND  CLASSIFICATION 

members  of  the  alliance  lodge  that,  by  a  suspension  of  its  rules,  hur- 
riedly qualified  Alosely,  so  that  he  might  bring  his  capital  and  his 
name  to  the  aid  of  this  joint  undertaking.  They  do  not  claim  to  have 
been  ignorant  of  this  proceeding,  or  to  have  offered  any  opposition  to 
it,  either  in  or  out  of  their  lodge,  or  that  they  made  any  protest  against 
his  accession  to  the  business.  On  the  contrary,  their  zeal  for  the  suc- 
cess of  the  movement  continued  undiminished.  And  so  with  regard 
to  the  withdrawal  of  IMosely  and  the  introduction  of  Lucas  in  his 
room  and  stead.  The  record  shows  consultation  with  quite  a  num- 
ber of  these  defendants  as  to  the  advisability  of  this  change,  and  an 
agreement  with  them  in  regard  thereto,  and  acquiescence,  at  least 
by  silence,  on  the  part  of  the  remainder.  All  these  parties,  through 
the  various  changes  in  the  personnel  of  the  organization,  by  death  and 
purchase,  and  in  the  firm  name  under  which  the  business  was  carried 
on,  not  only  stood  by  and  watched  the  movements  of  the  concern,  as 
one  in  which  they  had  a  part,  but  they  made  no  claim  of  dissolution 
by  reason  thereof  until  confronted  by  the  claims  of  these  complain- 
ants. It  was  then  too  late.  For,  conceding  that  either  one  of  these  acts 
might  have  been  availed  of  by  the  defendants  as  working  a  dissolution 
of  their  partnership,  yet,  at  their  election,  they  might  waive  this  effect. 
Second.  The  nature  of  this  enterprise  repels  the  idea  that  it  was  in 
the  contemplation  of  the  parties  that  either  death  or  any  transfer  of 
shares  should  work  a  dissolution  of  the  business.  Not  only  was  it  to 
continue  for  five  years,  "unless  two-thirds  of  the  stockholders  'agreed' 
to  discontinue  the  business  in  a  shorter  time,"  but  the  shares  of  the 
stockholders  were  transferable.  Says  Mr.  Bates,  in  his  work  on  Part- 
nership (volume  1,  §  72)  :  "The  fact  of  transferable  shares  makes 
such  an  association  different,  not  merely  in  magnitude,  but  in  kind, 
from  ordinary  partnerships,  because  not  based  upon  mutual  trust 
and  confidence  in  the  skill,  knowledge,  and  integrity  of  every  other 
partner.  Hence  a  sale  of  his  shares  by  a  member,  the  shares  being 
transferable,  is  not  a  dissolution.  Death  of  a  member  is  not  a  dis- 
solution, if  such  was  the  intent  and  the  character  of  the  association,  in 
that  the  shares  are  transferable,  and  it  is  governed  by  officers,  and  is 
in  the  form  of  a  corporation,  is  evidence  of  such  intent."  What  the 
text-writers  and  the  opinions  of  many  courts  call  the  "delectus  per- 
sonarum,"  an  element  in  an  ordinary  commercial  partnership,  is  lack- 
ing when  a  partnership  assumes  the  character  of  a  joint-stock  company 
with  transferable  shares.  2  Bates,  Partn.  §  581;  Machinists'  Nat. 
Bank  v.  Dean,  124  Mass.  81;  Walker  v.  Wait,  50  Vt.  668;  McNeish 
v.  Oat  Co.,  57  Vt.  316. 

It  follows  that  the  assignments  of  error  upon  the  decree  of  the 
Court  of  Chancery  Appeals,  in  the  particulars  above  indicated,  must 
be  overruled.  The  assignments  of  error  upon  the  court's  decree  as  to 
the  Lipscomb  claim  are  disposed  of  only.  The  decree  of  that  court 
is  in  all  things  affirmed. 


NATURE  AND  CHABAGTEBISTICS  83 


THE    NATURE    AND    CHARACTERISTICS    OF    A    PART- 
NERSHIP 

I.  Various  Conceptions  of  a  Partnership  *• 


HALLOWELi;  v.  BLACKSTONE  NAT.  BANIC 

(Supreme  Judicial   Court  of  Massachusetts,  1S91.     154  Mass.  359,  28  N.  E. 

281,  13  L.  R.  A.  315.) 

HoivMES,  J.  This  is  a  bill  to  redeem  certain  stock  given  by  one 
Smith,  the  plaintiff's  inf.olvent,  to  the  defendant  as  collateral  security 
for  a  loan  to  Smith,  The  main  question  is  whether  the  defendant  can 
hold  the  stock  as  security,  not  only  for  the  loan  mentioned,  but  also 
for  two  acceptances  of  a  firm  of  which  Smith  was  a  member,  which 
acceptances  the  defendant  had  discounted  before  the  date  of  the  loan 
in  question.  The  note  given  by  Smith  for  the  loan  authorizes  the  de- 
fendant to  sell  the  stock  "on  the  nonperformance  of  this  promise,  said 
bank  applying  the  net  proceeds  to  the  payment  of  this  note,  and  ac- 
counting to  me  for  the  surplus,  if  any."  It  then  goes  on,  and  these 
are  the  important  words,  "and  it  is  hereby  agreed  that  such  surplus, 
or  any  excess  of  collaterals  upon  this  note,  shall  be  applicable  to  any 
other  note  or  claim  against  me  held  by  said  bank." 

The  counsel  for  the  plaintiff  based  his  argument  on  the  proposition 
that  the  right  to  apply  the  excess  of  collaterals  to  any  other  note  or 
claim  was  conditional  upon  Smith's  nonperformance  of  his  promise. 
We  think  it  doubtful  at  least  whether  that  is  the  true  construction  of 
the  words  which  we  have  quoted.  We  are  disposed  to  read  the  agree- 
ment as  an  absolute  pledge  or  mortgage  of  the  securities  for  other 
notes  and  claims.  But  if  this  be  not  so  we  are  of  opinion  that  Smith 
did  not  perform  his  promise  within  the  meaning  of  the  note.  The 
bank  demanded  payment  of  Smith  on  January  3,  1889,  and  he  made 
partial  payments,  but  failed  to  pay  the  residue  and  requested  the  bank 
to  make  the  balance  a  time  loan,  which  the  bank  refused.  This  was 
a  nonperformance  of  his  promise  by  Smith.  It  is  true  that  the  report 
states  that  it  was  understood  that  the  demand  should  not  be  pressed 
without  further  notice.  But  this  did  not  take  away  the  effect  of  the 
breach.  It  merely  called  on  the  bank  to  give  notice  before  taking  fur- 
ther steps,  such  as  selling  the  security,  and  this  it  did.  We  neither 
construe  the  report  as  meaning,  nor  do  we  infer  from  it,  that  the 
breach  of  Smith's  promise  by  his  failure  to  pay  on  demand  was  waived 
by  the  bank.  On  January  3d,  if  not  before,  the  bank's  right  vested  to 
apply  any  excess  of  collaterals  upon  other  claims. 

1  For  a  discussion  of  principles,  see  Glluiore  on  Partnership,  {  40. 


84  NATURE    AND    CHARACTERISTICS 

The  question  remains  whether  the  bank  is  entitled  to  hold  the  se- 
curity for  the  bills,  which  were  accepted  by  Smith's  firm  and  not  by 
him  individually.  It  cannot  be  denied  that  the  acceptances  were 
"claims  against  him,"  and  that  the  words  used  in  his  note  were  broad 
enough  to  embrace  firm  acceptances,  unless  there  is  some  reason  in  the 
contract,  the  circumstances,  or  mercantile  practice,  to  give  them  a  nar- 
rower meaning.  Singer  Mfg.  Co.  v.  Allen,  123  Mass.  467;  Chuck  v. 
Freen,  Moody  &  M.  259.  If  Smith  had  had  private  dealings  and  a 
private  account  with  the  bank  as  a  depositor,  and  his  firm  also  had  had 
dealings  and  an  account  there,  and  Smith  had  given  security  in  the 
terms  of  his  note  in  order  to  be  allowed  to  overdraw  or  to  obtain  a 
discount,  it  may  be  that  the  generality  of  the  language  would  be  re- 
strained to  the  line  of  dealings  in  the  course  of  which  it  is  used.  Ex 
parte  McKenna  (City  Bank  Case)  3  De  Gex,  F.  &  J.  629.  See  Lindl. 
Partn.  (oth  Ed.)  119,  and  note.  But  we  are  called  on  to  construe  a 
printed  form  used  by  tlie  bank,  and  presented  by  it  for  those  who  bor- 
row from  it  to  sign.  The  question  is,  what  is  the  reasonable  inter- 
pretation of  such  words?  When  insisted  on  as  a  general  formula  to 
be  used  by  would-be  borrowers,  irrespective  of  any  special  course  of 
business  of  the  particular  person  who  signs  it,  which,  for  the  matter 
of  that,  there  does  not  appear  to  have  been  in  this  case.  For  all  that 
appears,  the  note  mentioned  may  have  been  the  only  transaction  that 
ever  took  place  between  the  defendant  and  the  plaintiff  alone.  The 
printed  form,  it  may  be  assumed,  would  have  been  used  by  the  bank 
equally  in  a  case  where  the  borrower  was  the  principal  man  in  his 
firm,  and  the  only  one  known  to  the  bank,  was  borrowing  for  his  firm 
daily,  and  had  never  borrowed  for  himself  but  in  this  instance,  and  in 
a  case  where  the  borrower's  membership  in  a  firm  whose  notes  the 
bank  held  was  unknown.  This  being  so,  in  the  opinion  of  a  majority 
of  the  court  there  is  no  sufficient  reason  for  not  giving  the  words  their 
full  legal  effect.  The  clause  pledging  the  property  for  any  other  claim 
against  the  debtor  is  not  inserted  with  a  view  to  certain  specific  debts, 
but  as  a  dragnet  to  make  sure  that  whatever  comes  to  the  creditor's 
hands  shall  be  held  by  the  latter  until  its  claims  are  satisfied.  Corey 
on  Accounts  and  Lindley  on  Partnership  have  made  it  popular  to  refer 
to  a  mercantile  distinction  between  the  firm  and  its  members.  But 
we  have  no  doubt  that  our  merchants  are  perfectly  aware  that  claims 
against  their  firms  are  claims  against  them,  and  when  a  merchant  gives 
security  for  any  claim  against  him,  and  there  is  nothing  to  cut  down 
the  literal  meaning  of  the  words,  he  must  be  taken  to  include  claims 
against  him  as  partner. 

Bill  dismissed.^ 

»  Compare  Bank  of  Buffalo  v.  Thompson,  121  N.  Y.  280,  24  N.  E.  473  (1890), 
where  an  opposite  result  was  reached. 


THE   PARTNERSHIP   NAMB  85 

II.  The  Partnership  Name  • 


HASKINS  V.  D'ESTE  et  al. 
(Supreme   Judicial    Court  of  Massacliusetts,   1882.     133   Mass.   356.) 

W.  Allen,  J.  St.  1S77,  p.  519,  c.  1G3,  provides  that  "any  sig- 
nature to  a  written  instrument  declared  on  or  set  forth  as  a  cause 
of  action  or  ground  of  defense  or  set-off,  in  an  action  at  law,  shall 
be  taken  as  admitted,  unless  the  party  sought  to  be  charged  thereby 
shall  file  in  court,  within  the  time  allowed  for  answer,  a  special  de- 
nial of  the  genuineness  of  such  signature  and  a  demand  that  the  party 
relying  thereon  shall  prove  the  same  at  the  trial." 

The  two  defendants  were  sued  in  a  writ  which  describes  them  as 
"late  copartners  under  the  firm  name  and  style  of  D'Este  &  Co.,"  and 
the  declaration  alleges  that  they  made  a  promissory  note  signed 
D'Este  &  Co."  One  of  the  defendants,  McKenzie,  did  not  appear.  The 
other,  D'Este,  appeared  and  filed  a  general  denial.  The  question  is 
whether  the  signature  is  to  be  taken  as  admitted  to  bind  D'Este,  or 
whether  it  is  only  admitted  as  the  signature  of  a  copartnership  of 
D'Este  &  Co.,  and  the  plaintiff,  to  hold  D'Este,  must  prove  that  he  was 
a  member  of  the  firm  whose  signature  he  admits.  The  question  is 
precisely  what  it  would  have  been  if  both  defendants  had  appeared 
and  filed  a  general  denial  in  answer.  The  admission  is  the  same,  as 
to  those  making  it,  whether  made  by  both  defendants  together,  or 
separately,  or  by  one  alone. 

A  partnership  is  not  a  person  distinct  from  its  members,  like  a 
corporation.  A  partnership  cannot  be  sued.  A  suit  must  be  against 
the  individuals  composing  it,  and  each  individual  stands,  as  to  proof 
of  his  liability,  as  if  he  were  sued  alone.  In  either  case  his  personal 
liability  upon  the  joint  undertaking  would  have  to  be  made  out,  and 
in  either  case  the  allegation  of  partnership  would  but  express  the  re- 
lation between  the  copartners;  and  the  relation  of  copartners  to  each 
other,  as  affects  their  liability  to  third  persons,  is  simply  one  of  agency. 
The  allegation  that  a  number  of  individuals  as  members  of  a  co- 
partnership made  a  contract  is  only  the  allegation  that  each  of  them, 
personally  or  by  his  agent,  made  it,  and  the  agency  is  alleged  and 
proved  by  the  copartnership. 

In  the  case  at  bar  the  substantial  allegation  is  that  each  of  the  de- 
fendants made  a  joint  note  in  the  name  of  D'Este  &  Co. ;  that  is,  that 
each  of  them  signed  that  name  to  the  note.  The  allegation  of  copart- 
nership amounts  only  to  a  statement  that  each  of  the  defendants  was 
authorized  to  sign  that  name  for  both,  and  that  an  agent  might  be 

»  For  a  discussion  of  principles,  see  (iilmore  on  I'artnership,  §§  41.  42. 


86  NATURE    AND    CHARACTERISTICS 

authorized  to  sign  for  both.  This  is  the  whole  significance  of  the  firm 
name.  It  is  a  name  which  the  partners  adopted,  by  which  each  could, 
in  certain  matters,  bind  the  other  with  himself,  or  another  agent  might 
bind  both.  It  was  simply  a  convenient  abbreviation  of  their  two 
names,  and,  when  used,  had  the  same  effect  as  if  no  firm  name  had 
been  adopted  and  the  name  of  each  partner  had  been  signed  in  full 
as  a  partner;  and  it  bound  each  only  because  he  had  adopted  it  as 
his  name  and  authorized  its  use  for  the  purposes  for  which  it  was  used. 
When  the  defendant  D'Este  admits  the  genuineness  of  the  signature, 
he  does  not  admit  it  to  be  a  mere  name.  He  admits  it  to  be  a  sign 
manual,  the  name  of  a  person  signed,  and  the  only  question  is :  Whose 
name  does  he  admit  it  to  be?  The  answer  is  plain.  He  admits  it  to 
be  the  genuine  signature  of  the  persons  whose  signature  it  is  alleged 
in  the  declaration  to  be.  The  declaration  does  not  allege  that  the  firm 
made  the  note.  It  alleges  that  the  defendants,  D'Este  and  McKenzie, 
in  the  name  of  D'Este  &  Co.,  made — that  is,  signed — the  note;  that 
it  is  the  genuine  signature  of  both  in  the  name  they  had  adopted  for 
binding  themselves  jointly.  It  is  said  that  it  is  not  alleged  that  the 
note  was  signed  by  the  defendant  D'Este  personally  and  that  he  may 
not  have  been  one  of  the  persons  doing  business  under  the  name  of 
D'Este  &  Co.  But  it  is  alleged  that  the  two  defendants,  one  of  whom 
is  D'Este,  made  the  note  in  that  name.  If  the  allegation  had  been 
that  the  defendant  D'Este,  doing  business  in  the  name  of  John  Doe, 
had  made  the  note  in  that  name,  it  would  hardly  be  contended  that  the 
genuineness  of  his  signature  would  not  be  admitted,  because  there 
might  have  been  another  person  doing  business  in  that  name  whose 
signature  it  might  be,  nor  because  the  signature  might  have  been 
made  by  an  agent,  and  not  by  the  defendant  personally.  The  declara- 
tion alleges  that  the  defendants  made  the  note.  If  the  writ  is  taken 
in  connection  with  the  declaration,  there  is,  so  far  as  the  question  in 
issue  is  concerned,  only  the  further  allegation,  in  effect,  that  the  two 
defendants  held  such  a  relation  to  each  other  that  each  had  authorized 
the  other  to  bind  him  in  a  joint  note  by  the  name  of  D'Este  &  Co. 
We  think  the  signature  is  alleged  to  be  that  of  the  defendant  D'Este, 
and  that  its  genuineness,  not  having  been  denied,  must  be  taken  to 
have  been  admitted.  See  Wilkes  v.  Hopkins,  1  C.  B.  737;  Mahaiwe 
Bank  v.  Douglass,  31  Conn.  170. 

In  the  opinion  of  a  majority  of  the  court,  the  ruling  of  the  judge 
that  the  plaintiff  was  not  entitled  to  recover  was,  for  these  reasons, 
erroneous. 

Exceptions  sustained. 


PAKTNEIiSniF   PEOPEBTY 

III.  Partnership  Property  * 
1.  What  is  Included  in  Partnership  Property 


81 


ROBINSON  BANK  v.  MILLER   et  al. 

(Supreme  Court  of  Illinois,  ]S9i.     153  III.  244.  .''.S  N.  B.  107S,  27  L.  R.  A.  449, 

46  Am.  St  Rep.  883.) 

John  Newton,  John  S.  Emmons,  and  Frank  O.  Miller,  having  each 
acquired,  with  individual  funds,  a  one-third  interest  in  a  certain  parcel 
of  land  containing  four  acres,  entered  into  an  oral  agreement  of  part- 
nership to  engage  in  the  business  of  milling  and  of  buying  and  selling 
grain.    The  business  of  the  firm  was  done  in  a  mill  on  said  land.    John 
S.  Emmons  executed  two  mortgages  on  his  one-third  interest  in  the 
land— one  to  Willis  Emmons  to  secure  him  as  surety  on  a  note  of 
John  S.  Emmons,  and  the  other  to  Wiley  S.  Emmons  and  William  W. 
Walter  to  secure  them  as  sureties  on  another  note  of  John  S.  Emmons. 
Frank  O.  Miller  also  executed  a  mortgage  on  his  one-third  interest  to 
one  Lamport    The  Robinson  Bank,  a  creditor  of  the  firm  of  Newton, 
Emmons  &  Miller,  claims  that  the  mill  property  and  the  land  upon 
which  the  mill  stands  was  partnership  property  belonging  to  Newton, 
Emmons  &  Miller  as  partners;   that  the  individual  creditors  of  Miller 
and  John  S.  Emmons,  such  as  Willis  Emmons,  Wiley  S.  Emmons,  and 
William  W.  Walter,  were  only  entitled  to  such  surplus  as  might  arise 
out  of  the  mill  property  after  the  payment  of  the  firm  debts  therefrom. 
The  bank  filed  a  bill  seeking  to  have  the  mortgages  to  Wiley  S.  Em- 
mons, William  W.  Walter,  and  Willis  Emmons,  and  to  Lamport,  set 
aside.     Said  mortgagees  filed  cross-bills  asking  for  the  foreclosure  of 
their  respective  mortgages.     In  the  circuit  court  the  mortgages  by 
John  S.  Emmons  were  held  to  be  valid,  and  a  foreclosure  was  decreed. 
The  mortgage  to  Lamport  was  set  aside  for  fraud.    This  was  an  appeal 
by  the  bank  and  by  Lamport.    The  validity  of  the  mortgages  depends 
on  whether  the  land  on  which  they  were  given  was  the  property  of  the 
mortgagors  individually  or   whether   it  belonged   to  the   partnership. 
Magruder,  j.5     *     *     *     Whether  real  estate  upon  which  a  part- 
nership transacts  its  business  is  firm  property  or  the  property  of  the 
individual  members  of  the  firm  is  oftentimes  a  difficult  question  to 
determine,  and  one  upon  which  the  authorities  are  not  altogether  uni- 
form.   The  mere  fact  of  the  use  of  land  by  a  firm  does  not  make  it 
partnership  property.     Geopper  v.  Kinsinger,  39  Ohio  St.  429 ;    Hat- 
chett  v.  Blanton,  72  Ala.  423.     Nor  is  real  estate  necessarily  the  in- 
dividual property  of  the  members  of  a  firm  because  the  title  is  held 

*  For  a  discussion  of  principles,  see  Gilniore  on  Partnership.  §§  43-51. 
»  Part  of  tbe  opinion  is  omitted  and  the  statement  of  facts  abridged. 


88  NATURE    AND    CHARACTERISTICS 

by  one  member,  or  by  the  several  members  in  individual  interests.     1 
Bates,  Partn.  §  280.     Wliether  real  estate  is  partnership  or  individual 
property  depends  largely  upon  the  intention  of  the  partners.    That  in- 
tention may  be  expressed  in  the  deed  conveying  the  land,  or  in  the  arti- 
cles of  partnership ;   but  when  it  is  not  so  expressed  the  circumstances 
usually  relied  upon  to  determine  the  question  are  the  ownership  of  the 
funds'paid  for  the  land,  the  uses  to  which  it  is  put,  and  the  manner  in 
which  it  is  entered  in  the  accounts  upon  the  books  of  the  firm.    1  Bates, 
Partn.  §  280 ;   2  Lindl.  Partn.  marg.  p.  649 ;  17  Am.  &  Eng.  Enc.  Law, 
p.  945,  and  cases  in  note.    Where  real  estate  is  bought  with  partnership 
funds  for  partnership  purposes,  and  is  applied  to  partnership  uses,  or 
entered  and  carried  in  the  accounts  of  the  firm  as  a  partnership  asset, 
it  is  deemed  to  be  firm  property ;   and  in  such  case  it  makes  no  dififer- 
ence,  in  a  court  of  equity,  whether  the  title  is  vested  in  all  the  part- 
ners, as  tenants  in  common,  or  in  one  of  them,  or  in  a  stranger.     T. 
Pars.  Partn.   (4th  Ed.)   §  265;    1  Bates,  Partn.  §  281;    Johnson  v. 
Clark,  18  Kan.  157 ;  17  Am.  &  Eng.  Enc.  Law,  p.  948,  and  cases  cited. 
If  the  real  estate  is  purchased  with  partnership  funds,  the  party  hold- 
ing the  legal  title  will  be  regarded  as  holding  it  subject  to  a  resulting 
trust  in  favor  of  the  firm  furnishing  the  money.    In  such  case  no  agree- 
ment is  necessary,  and  the  statute  of  frauds  has  no  application.    Park- 
er v.  Bowles,  57  N.  H.  491 ;  1  Bates,  Partn.  §  281. 

In  the  case  at  bar  the  land  was  not  purchased  with  partnership  funds. 
The  undivided  one-third  interest  bought  by  John  S.  Emmons  was  paid 
for  by  him  with  his  own  individual  money.  Miller  also  paid  for  the 
one  undivided  one-third  interest,  purchased  by  him  with  his  individual 
funds.  None  of  the  money  of  the  firm  of  Newton,  Emmons  &  Miller 
was  contributed  towards  the  purchase  of  the  one-third  interest  held 
by  Newton.  Indeed,  the  proof  shows  that  the  firm  of  Newton,  Emmons 
&  Miller  was  formed  by  an  oral  agreement  after  Emmons  and  Miller 
had  bought  their  interests.  Each  partner  here  held  the  title  to  an  un- 
divided one-third  part  of  the  property.  No  entries  were  made  upon  the 
books  of  the  firm  showing  that  the  real  estate  was  treated  as  firm 
assets.  The  evidence,  however,  does  show  that  the  property  was 
bought  for  the  purpose  of  being  used  in  the  milling  business,  and 
that  after  its  purchase  it  was  used  for  firm  purposes,  and  that  the  firm 
gave  its  notes  to  pay  for  repairs,  and  for  placing  new  machinery  in 
the  mill  upon  the  premises.  Under  these  circumstances,  was  the  land 
partnership  property,  or  the  individual  property  of  the  partners,  hold- 
ing as  tenants  in  common?  It  cannot  be  said  that  the  land  is  firm 
property,  upon  the  theory  of  a  resulting  trust,  because  the  money  of 
the  firm  was  not  used  to  buy  the  property.  Such  a  trust  might  exist 
in  favor  of  the  firm,  regarding  it  as  a  person,  if  the  partners  had  taken 
the  legal  title,  and  the  firm  had  advanced  the  purchase  money.  The 
trust  must  arise  at  the  time  of  the  execution  of  the  conveyance,  and 
when  the  title  vests  in  the  grantee.  Such  could  not  have  been  the  case 
here,  under  the  facts  stated.     Van  Buskirk  v.  Van  Buskirk,  148  111. 


PARTNERSHIP   PROPERTY  89 

9,  35  N.  E.  383.  In  view  of  the  fact  that  the  land  was  bought  with 
individual,  and  not  partnership,  funds,  and  was  conveyed  in  undivided 
interests  to  the  several  partners,  and  in  the  absence  of  any  agreement 
that  it  should  be  regarded  as  firm  property,  does  the  conduct  of  the 
parties  in  afterwards  forming  a  partnership,  and  using  the  property 
for  partnership  purposes,  and  repairing  and  improving  the  mill  at  the 
expense  of  the  firm,  make  the  land  firm  property,  in  a  court  of  equi- 
ty? A  negative  answer  to  this  question  is  found  in  many  of  the  au- 
thorities.    *     ♦     * 

The  general  doctrine  of  all  these  cases  is  that  a  purchase  of 
the  land  with  partnership  funds  is  necessary  to  make  it  firm  prop- 
erty.    *     *     * 

The  weight  of  authority  seems  to  us  to  support  the  position  that 
where  persons  who  afterwards  become  partners  buy  land  in  their  in- 
dividual names  and  with  their  individual  funds,  before  the  making  of 
a  partnership  agreement,  the  land  will  be  regarded  as  the  individual 
property  of  the  partners,  in  the  absence  of  a  clear  and  explicit  agree- 
ment subsequently  entered  into  by  them  to  make  it  firm  property,  or 
in  the  absence  of  controlling  circumstances  which  indicate  an  inten- 
tion to  convert  it  into  firm  assets.  We  do  not  think  that  an  application 
of  this  rule  to  the  facts  of  the  present  case  shows  the  real  estate  here 
in  controversy  to  be  firm  property.     *     *    * 

Decree  affirmed. 


2.  Partnership  Capitai, 


DEAN  et  al.  v.  DEAN  et  a1. 
(Supreme  Court  of  Wisconsin,  1882.    54  Wis.  23,  11  N.  W.  239.) 

Cole,  C.  J.^  This  action  is  brought  by  the  plaintiffs,  as  executors, 
to  obtain  a  construction  of  the  codicil  to  the  will  of  N.  W.  Dean, 
who  died  February  28,  1880.  The  will  was  dated  February  29,  1876, 
and  makes  a  full  disposition  of  the  testator's  estate,  both  real  and  per- 
sonal. *  *  *  There  is  no  controversy  as  to  the  proper  construction 
of  the  will,  and  we  need  not  further  give  its  provisions.  The  codicil 
bears  date  February  23,  1880.  On  May  1,  1871,  the  decedent  and  his 
brother,  Thaddeus  Dean,  entered  into  partnership  in  the  business  of 
dealing  in  lumber  in  the  city  of  Chicago,  which  partnership  was  con- 
tinued to  the  death  of  N.  W.  Dean.  The  will  makes  no  express  refer- 
ence to  this  partnership  business.  But  the  codicil,  after  reciting  that 
this  partnership  business  had  hitherto  been  profitable  to  the  tes- 
tator, which  was  largely  due  to  the  business  capacity  and  integrity 
of  his  brother  Thaddeus,  contains  this  language : 

"  *     *     *     I  hereby  direct  my  said  executors  to  allow  my  present 

•  Part  of  the  opinion  is  omitted. 


90  NATURE    AND    CHARACTERISTICS 

capital  in  said  business  to  remain  for  the  period  of  two  years  after 
my  decease,  collecting  and  receiving  annually,  from  my  said  brother 
Thaddeus,  the  net  profits  arising  from  said  business,  under  my  agree- 
ment with  him,  belonging  to  me,  for  the  benefit  of  my  estate.  At  the 
expiration  of  two  years  it  is  my  will  and  I  direct  that  my  said  execu- 
tors have  a  full  settlement  and  accounting  with  my  said  brother  Thad- 
deus in  relation  to  said  business,  and  that  thereupon  they  collect  and 
receive  from  him  one-half  of  the  net  value  of  my  interest  therein, 
and  upon  the  payment  by  him  of  the  one-half  value  so  ascertained  I 
instruct  and  direct  my  said  executors  to  execute  and  deliver  to  him 
all  proper  and  necessary  assignments  and  conveyances  so  as  to  vest 
in  him  absolutely  all  my  right,  title,  and  interest  in  the  business  afore- 
said; it  being  my  intention,  in  addition  to  the  bequest  heretofore 
made  to  him  in  my  said  will,  to  bequeath  and  devise  to  him  one-half 
of  my  entire  interest  in  said  business,  subject  to  the  limitations  and 
restrictions  aforesaid." 

The  articles  of  copartnership,  to  which  reference  is  made  in  the 
codicil,  are  quite  full  and  specific.  They  provide,  among  other  things, 
that  each  partner  should  contribute  $15,000  to  the  capital  of  the  firm, 
which  was  to  be  used  in  carrying  on  the  copartnership  business ;  that 
Thaddeus  Dean  was  to  have  the  management  of  the  business ;  that  he 
should  be  entitled  to  receive  two-thirds  of  the  profits,  and  N.  W.  Dean 
one-third  thereof.  The  losses  were  to  be  borne  in  the  same  propor- 
tion. Books  of  account  were  to  be  kept,  wherein  all  of  the  transac- 
tions of  the  firm  should  be  entered,  and  which  books  should  be  open 
to  the  inspection  of  each  partner  at  all  times.  By  the  ninth  clause  it 
was  provided  that  N.  W.  Dean  was  to  take  out  of  the  cash  of  the 
company's  funds  $125  per  month  for  his  own  use,  and  Thaddeus  Dean 
$250  per  month,  providing  these  sums  could  be  so  drawn  out  by  the 
respective  parties  without  impairing  the  capital  of  the  firm,  but  neither 
partner  was  to  take  a  greater  sum  for  his  own  use  during  any  month 
without  the  written  consent  of  the  other.  The  tenth  clause  provided 
that  Thaddeus  Dean,  at  the  end  of  each  year,  and  oftener,  if  need  be, 
on  request,  should  make  and  render  to  N.  W.  Dean  a  just  and  true 
account  of  all  the  gains  and  profits,  as  well  as  losses,  of  the  business, 
and  of  all  things  done  on  behalf  of  the  partnership,  and  this  account 
being  so  made  he  was  to  pay  N.  W.  Dean  his  proportionate  share  of 
the  profits,  and  take  to  himself  his  own  share.  In  the  eleventh  clause 
it  was  provided  that  during  the  continuance  of  the  copartnership  none 
of  the  capital  of  the  firm,  nor  any  of  the  accrued  but  undivided  gains 
and  profits  thereof,  should  be  used  or  employed  by  the  parties  thereto 
for  any  other  purpose  than  carrying  on  said  business.  In  the  twelfth, 
that  at  the  end  of  the  copartnership  a  final  accounting  should  be  had, 
and  all  the  debts  of  the  firm  should  be  first  paid,  then  each  should 
draw  out  the  amount  of  capital  originally  contributed  by  him,  dimin- 
ished by  his  proportionate  share  of  losses,  if  any;  the  balance,  if  any, 
to  be  divided  as  provided  for  dividing  profits.  These  are  the  material 
provisions  of  the  copartnership  agreement. 


PAETNERSHIP   PEOPERTT  91 

From  three  letters  which  were  introduced  on  the  hearing — one  writ- 
ten by  Thaddcus  Dean  ;  the  other  two  by  N.  W.  Dean— it  appears 
that  each  party  agreed,  in  July,  1872,  to  increase  its  capital  to  $20,000, 
and  did  so.  And  it  further  appears,  from  the  annual  statement  made 
of  the  partnership  business,  that  at  the  end  of  each  partnership  year 
each  partner  was  credited  on  the  books  of  the  concern  with  his  share 
of  the  profits,  and  was  charged  with  the  amount  which  he  had  drawn 
out  during  the  year.  The  accumulated  but  undivided  profits  of  the 
business  consisted  almost  wholly  of  real  estate,  lumber,  notes,  book 
accounts,  and  other  personal  property  belonging  to  the  firm.  The 
amount  standing  to  the  credit  of  N.  W.  Dean  at  the  time  of  his  death, 
including  his  capital  of  $20,000,  was  $43,478.16.  Or,  to  speak  more 
accurately,  that  sum  embraced  the  profits  standing  to  the  credit  of 
N.  W.  Dean  on  the  books  of  the  firm  at  the  time  of  his  death,  and  also 
the  unascertained  profits  which  had  accrued  since  the  last  annual  state- 
ment of  May  1,  1879,  down  to  that  time. 

The  question  arising  upon  the  codicil,  which  the  executors  request 
the  aid  of  the  court  in  determining,  is  what  amount  they  must  leave 
in  the  partnership  business  for  two  years,  and  which,  at  the  end  of 
that  period,  they  are  directed  to  assign  and  convey  to  Thaddeus  Dean 
upon  his  paying  one-half  of  its  ascertained  net  value;  the  annual 
profits  having  been  collected  by  them  in  the  meantime.  On  the  part 
of  the  residuary  legatee  Thaddeus  Dean  it  is  claimed  that  it  was  the 
intention  of  the  testator  that  his  entire  interest  in  the  partnership  busi- 
ness should  remain  in  the  business,  including  both  his  capital  of  $20,- 
000  and  all  accumulated  but  undivided  profits  belonging  to  him  under 
the  partnership  agreement;  while,  on  the  part  of  other  residuary  leg- 
atees, it  is  insisted  that  it  was  his  capital  only  which  was  to  be  left  in 
the  business.     *     *     * 

The  intention  of  the  testator  must  prevail  if  it  is  possible  to  gather 
it  from  the  language  of  the  entire  codicil.  That  intention  was  to 
allow  his  capital  to  remain  in  the  business  for  two  years,  but  nothing 
more.     *     *     * 

It  results,  from  the  views  expressed,  that  the  judgment  of  the  cir- 
cuit court,  placing  a  construction  upon  the  codicil,  and  giving  direc- 
tions to  the  executors  in  regard  to  the  proper  execution  of  their  trust, 
is  erroneous.  The  judgment  must,  therefore,  be  reversed,  and  the 
cause  be  remanded,  with  directions  to  enter  a  judgment  in  accordance 
with  this  opinion. 


92  NATURE   AND    CHARACTERISTICS 


3.  Good  Wili, 


NEWARK  COAL  CO.  v.  SPANGLER. 

(Court  of  Chancery  of  New  Jersey,  1896.    54  N.  J.  Eq.  354,  34  Atl.  932.) 

Bill  by  the  Newark  Coal  Company  against  Alexander  F.  Spang- 
ler.  Heard  on  application  for  preliminary  injunction,  on  bill  and  af- 
fidavit, and  answer  and  affidavit.     Denied. 

Emery,  V.  C.  The  bill  in  this  case  is  filed  by  the  complainant,  the 
Newark  Coal  Company,  which  is  engaged  in  the  business  of  buying 
and  selling  coal  in  East. Orange,  to  restrain  the  defendant,  Alexander 
Frank  Spangler,  from  using  the  name  of  the  company  in  any  man- 
ner in  the  conduct  of  a  similar  business,  and  application  is  now  made 
for  a  preliminary  injunction  pending  final  hearing.  The  bill  and  af- 
fidavit and  the  answer  and  affidavit  disclose  the  following  undis- 
puted facts : 

The  defendant,  Spangler,  previous  to  March  18,  1892,  had  for  sev- 
eral years  been  carrying  on  the  coal  business  under  the  name  of  the 
Newark  Coal  Company,  unincorporated,  and  at  that  time  a  compa- 
ny was  organized  under  the  same  name.  Spangler  and  two  other 
persons  were  the  incorporators  and  subscribers,  and,  on  the  incor- 
poration, Spangler,  by  bill  of  sale,  conveyed  to  the  company  the  goods 
and  chattels  used  in  carrying  on  his  business,  and  also  the  good  will 
of  the  Newark  Coal  Company,  unincorporated,  formerly  carried  on 
by  A.  Frank  Spangler,  in  the  city  of  Newark,  county  of  Essex,  and 
state  of  New  Jersey. 

Spangler  became  president  and  director  of  the  company  on  its  or- 
ganization, and  continued  to  hold  these  offices  until  March  5,  1896, 
when  he  ceased  to  be  either  a  director  or  officer,  but  still  continued 
to  be  a  stockholder  on  the  books  of  the  company.  After  March  5, 
1896,  Spangler  commenced  the  coal  business  on  his  own  account,  lo- 
cating his  office  near  the  company's  office,  and,  upon  the  signs  at  the 
street  and  on  his  office,  describes  his  business,  "A.  F.  Spangler,  For- 
merly of  the  Newark  Coal  Company."  He  has  also  issued  a  circu- 
lar letter  describing  himself  in  this,  also,  as  "formerly  of  the  New- 
ark Coal  Co.,"  in  which  he  appeals  for  orders  to  the  customers  "who 
have  patronized  him  and  his  company  for  the  past  eleven  years"; 
stating,  among  other  things,  "that  he  originally  established,  owned, 
and  controlled  the  Newark  Coal  Company,  since  April,  1885,  and  un- 
til he  incorporated  the  company,  in  March,  1892."  The  circular  origi- 
nally issued  on  March  13,  1896,  described  the  business  as  "A.  F. 
Spangler  &  Co.,  Formerly  the  Newark  Coal  Company,"  but  this  cir- 
cular was  withdrawn,  and  the  present  form,  "formerly  of  the  New- 


PARTNEE8HIP   PEOPEETT  93 

ark  Coal  Company,"  adopted ;  and  his  business  is  now  carried  on  in 
this  manner,  his  advertisements  and  circulars  stating  his  connection 
with  the  company  as  "formerly  of  the  Newark  Coal  Company.'' 

The  complainant  alleges  in  this  bill  that  the  defendant  is  attempt- 
ing to  deceive  customers  into  the  belief  that  they  are  dealing  with 
the  complainant;  but  as  this  allegation  is  not  supported  by  the  affi- 
davit, and  is  denied  by  the  answer,  which  in  this  respect  is  also 
sustained  by  the  form  of  the  appeal  in  the  circular,  it  cannot  be  con- 
sidered as  affording  any  basis  for  the  preliminary  injunction.  The 
real  question  is  whether  the  complainant  is  entitled  to  such  injunction 
on  the  above  undisputed  facts. 

The  defendant,  on  the  sale  of  the  good  will,  having  made  no  cove- 
nant with  the  company  not  to  engage  in  the  business,  it  is  clear  that 
he  cannot  be  prevented  from  exercising  this  right  to  engage  in  the 
business,  even  as  a  rival  to  the  company.  Richardson  v.  Peacock 
(Err.  &  App.  1881)  33  N.  J.  Eq.  597.  And  if  the  contract  of  sale, 
which  was  the  only  contract  he  made  with  the  company,  does  not, 
either  by  its  expressed  or  implied  obligations,  restrain  him,  it  is 
also  clear  that  in  carrying  on  such  rival  business  he  has  the  right 
to  state  his  former  connection  with  the  business  sold.  In  Hookham 
V.  Pottage,  8  Ch.  App.  91,  95,  Malins,  V.  C.  (page  94,  note),  alludes 
to  what  he  calls  "the  well-established  rule  that  a  man,  having  been  in 
the  employ  of  a  trader  of  reputation,  is  entitled,  in  a  fair  manner,  to 
say  that  he  comes  from  him."  Lord  Justice  James,  on  appeal  (Id.  p. 
95)  in  this  case,  says,  "I  agree  that  defendant  had  a  right  to  state 
that  he  was  the  Samuel  Pottage  formerly  manager  and  afterwards 
partner  in  the  firm  of  H.  &  P.,  and  that  he  had  a  right  to  avail  him- 
self, by  the  statement  of  that  fact,  of  the  reputation  which  he  had 
acquired."  He  has,  however,  no  right  to  make  the  statement  in 
such  a  way  as  to  represent  that  he  was  carrying  on  the  business. 
This  was  not  a  case  of  sale  of  the  good  will  by  one  purchaser  to 
another,  but  a  dissolution  of  the  firm  by  decree  of  court,  on  which 
the  business  went  to  complainant,  who  continued  it,  not  under  the 
name  of  H.  &  P.  (the  firm  name),  but  under  the  name  of  H.  &  Co. 
Defendant  set  up  business  a  few  doors  off,  as  "P.,  from  H.  &  P."  In 
this  case  it  was  found,  as  matter  of  fact,  that  the  manner  of  putting 
up  the  names  was  calculated  to  lead  the  public  to  suppose  that  Pot- 
tage was  still  connected  with  the  old  firm,  and  an  injunction  was 
therefore  ordered.  A  sale  of  the  business  or  trade  seems  to  be  con- 
sidered a  dift'erent  thing  from  the  sale  of  the  good  will.  See  14  Ch. 
Div.  600.  Whether,  on  a  sale  of  good  will,  there  is  an  implied  cov- 
enant not  to  use  the  name  in  any  manner,  was  not  decided  in  this 
case,  or  any  other  to  which  I  have  been  referred. 

"Good  will"  is  a  term  somewhat  indefinite,  and  it  may  be  impos- 
sible so  to  define  it  as  to  include  an  application  to  all  cases.  In  Crut- 
trell  V.  Lye,  17  Ves.  346,  Lord  Eldon  said  that  the  good  will  which 


94  NATURE    AND    CHARACTERISTICS 

is  the  subject  of  sale  is  nothing  more  than  the  probability  that  the 
old  customers  will  resort  to  the  old  place;  but  Sir  George  Jes- 
sel,  in  Ginesi  v.  Cooper,  14  Ch.  Div.  596,  601,  points  out  that  this 
definition  was  one  which  was  applicable  only  to  the  facts  and  situa- 
tion in  that  case,  and  in  the  same  opinion  gives  the  following  wider 
definition  of  "good  will"  made  by  Vice  Chancellor  Wood  in  Churton 
V.  Douglas,  5  Jur.  (N.  S.)  887,  890,  a  leading  case:  "It  would  be  tak- 
ing too  narrow  a  view  of  what  is  laid  down  by  Lord  Eldon  [in 
Cruttrel  v.  Lye]  to  say  that  good  will  is  confined  to  that.  'Good 
will,'  I  apprehend,  must  mean  every  advantage — every  positive  ad- 
vantage, if  I  may  so  express  it,  as  contrasted  with  the  negative 
advantage  of  the  late  partner,  not  carrying  on  the  business  himself 
• — that  has  been  acquired  by  the  old  firm  in  carrying  on  its  busi- 
ness, whether  connected  with  the  premises  on  which  the  business  was 
previously  carried  on,  or  with  the  name  of  the  late  firm,  or  with  any 
other  matter  carrying  with  it  the  benefit  of  the  business." 

If  this  definition  should  be  applied  to  the  present  case,  the  question 
is  whether  the  right  to  all  advantage  connected  with  the  name  of  the 
company  gives,  as  against  the  vendor  of  the  good  will,  the  exclu- 
sive right  to  use  the  name  of  the  firm,  and  prevents  the  vendor  from 
endeavoring  afterwards  to  acquire  business  by  advertising  that  he 
was  formerly  connected  with  the  firm  or  company.  That  such  ad- 
vertisement would,  to  sortie  extent,  detract  from  the  value  of  the 
good  will  which  he  has  sold,  and  that  such  was  the  intent,  seems  to 
me  quite  clear.  But,  even  admitting  this  efifect  and  intent,  the  ques- 
tion at  issue  is  not  solved.  For,  if  this  were  the  whole  test,  then 
the  vendor  of  a  good  will  could  not  set  up  a  rival  business  in'  the 
neighborhood  at  all,  as  this  would  almost  necessarily  affect  to  some 
extent  the  good  will  sold. 

The  vendor  of  a  good  will,  who  has  not  expressly  restricted  him- 
self against  carrying  on  the  business,  being  permitted  by  law  to 
carry  on  a  rival  business  wherever  he  chooses,  may  push  his  busi- 
ness as  any  stranger  or  outsider  might,  even  though  this  does  in- 
terfere with  the  business  he  has  sold,  and  the  real  question,  there- 
fore, is  narrowed  down  to  this :  In  thus  pushing  his  rival  business, 
what  acts,  if  any,  must  the  vendor  be  restrained  from?  As  was  said 
by  Cotton,  L.  J.,  in  Pearson  v.  Pearson,  27  Ch.  Div.  145,  the  real  diffi- 
culty is  to  draw  the  line ;  and  in  this  case,  by  reason  of  this  difficulty, 
he  refused  to  hold  that  direct  solicitation  of  the  old  customers  could 
be  restrained,  and  on  this  point  overruled  Labouchere  v.  Dawson, 
L.  R.  13  Eq.  322,  decided  by  Lord  Romilly,  and  strongly  approved 
by  Sir  George  Jessel  in  Ginesi  v.  Cooper,  14  Ch.  Div.  596.  But  in 
a  very  late  case  the  house  of  lords  have  considered  the  whole  sub- 
ject, and  in  Trego  v.  Hunt,  [1896]  App.  Cas.  7,  have  overruled  Pear- 
son V.  Pearson,  and  have  finally  settled  the  law  in  England  in  ac- 
cordance with  the  doctrine  in  Labouchere  v.  Dawson,  viz.  that  where 


PARTNEESHIP   PROPERTY  95 

the  good  will  of  a  business  is  sold,  without  further  provision,  the 
vendor  may  set  up  a  rival  business,  but  he  is  not  entitled  to  canvass 
the  customers  of  the  old  firm,  and  may  be  restrained  by  injunction 
from  soliciting  any  person  who  was  a  customer  of  the  old  firm  prior  to 
the  sale  to  continue  to  deal  with  the  vendor,  or  not  to  deal  with  the 
purchaser.  The  doctrine  is  put  upon  the  ground  that  these  acts  are  di- 
rect and  intentional  dealings  with  the  good  will  sold,  and  efforts  to 
destroy  it,  in  which  the  vendor  takes  advantage  of  the  business  con- 
nection of  the  old  firm,  and  his  knowledge  of  that  connection.  Lord 
Hersciiell  (pages  20  and  21). 

In  Richardson  v.  Peacock,  33  N.  J.  Eq.  597,  the  case  of  Labouchere 
V.  Dawson  was  cited  with  approval  by  Mr.  Justice  Dixon,  in  deliv- 
ering the  opinion  of  the  court;  and  I  think  the  doctrine  of  that  case 
may  be  taken  to  be  so  far  settled  in  this  state  as  to  entitle  the  com- 
plainant in  this  case  to  an  injunction  against  such  solicitation,  had 
the  injunction  been  asked  for  this  purpose.  But  the  complainant  is 
not  now  pressing,  or  even  asking  for,  such  injunction,  but  for  an 
injunction  against  any  use  of  the  name  whatever,  even  when  the  use 
of  the  name  is  merely  to  state  the  former  connection  of  the  vendor 
therewith.  As  to  this  particular  act  of  the  vendor,  Cotton,  L.  J.,  in 
Pearson  v.  Pearson,  27  Ch.  Div.  157,  says,  "It  is  admitted  that  a 
person  who  has  sold  the  good  will  of  his  business  may  set  up  a  sim- 
ilar business  next  door,  and  say  that  he  is  the  person  who  carried  on 
such  business,  although  such  proceedings  manifestly  tend  to  prevent 
the  old  customers  going  to  the  old  place."  And  even  Lord  Herschell. 
in  Trego  v.  Hunt,  supra  (page  20),  quoting  this  passage,  does  not 
controvert  this  statement  of  a  vendor's  rights. 

There  are,  however,  no  cases  cited  upon  the  question,  and  not- 
withstanding these  intimations  of  opinion  by  these  distinguished  judg- 
es, arguendo,  it  now  strikes  me  that  this  act  of  the  vendor,  appealing 
to  the  public  for  custom  on  the  ground  of  this  former  connection  with 
the  company,  comes  within  the  principle  established  by  Trego  v.  Hunt, 
and,  if  this  were  the  only  question  in  the  case,  should  be  enjoin- 
ed as  a  direct  and  intentional  interference  with  the  very  thing  sold 
in  the  good  will.  The  purchaser  was  entitled  to  the  name,  and,  as 
Vice  Chancellor  Wood  says  in  Churton  v.  Douglas,  supra,  to  every 
advantage  connected  with  the  same.  This  would,  of  course,  include 
any  advantage  then  accruing  to  the  name  or  to  the  business  by  rea- 
son of  the  vendor's  previous  connection  with  it;  and  to  now  base  his 
appeal  to  the  public  for  business  on  the  ground  that  he  was  for- 
merly connected  with  the  business  sold  seems  to  be  a  direct  attempt 
to  appropriate  to  himself  part  of  that  which  he  has  already  sold, 
and  received  pay  for.  The  permission  to  conduct  a  rival  business 
is  allow^ed  to  the  vendor  of  the  "good  will,  in  the  interest  of  the  pub- 
lic, and  to  prevent  restraint  of  trade.  But  in  carrying  on  this  busi- 
ness he  must  not,  as  was  said  by  Lord  Alacnaughten  in  Trego  v. 


96  NATURE    AND    CHARACTERISTICS 

Hunt  [1896]  App.  Cas.  24,  28,  "make  his  approaches  from  the  van- 
tage ground  of  his  former  position,  moving  under  cover  of  a  con- 
nection which  is  no  longer  his.  He  may  not  sell  the  custom,  and  steal 
away  the  customers  in  that  fashion," 

If,  therefore,  the  only  question  in  this  case  was  whether  the  de- 
fendant, having  sold  the  good  will  of  his  business,  was  now  entitled 
to  carry  on  a  rival  business,  stating  his  former  connection  with  the 
business  sold,  I  should  be  inclined,  as  at  present  advised,  to  grant 
the  injunction.  But  the  difficulty  with  the  complainant's  case  is  one 
which  reached  beyond  this  sale  of  the  good  will.  The  business  and 
good  will  which  the  defendant,  Spangler,  sold,  was  sold  in  March, 
1892,  and  was  the  good  will  of  the  Newark  Coal  Company;  and,  as 
to  the  business  of  this  unincorporated  company,  it  might  be  held  that 
he  was  under  an  implied  obligation  not  to  attempt  to  withdraw  it  to 
his  new  business  by  stating  his  former  connection  therewith.  But 
after  this  sale  of  the  good  will  the  vendee,  the  Newark  Coal  Com- 
pany, the  present  complainant,  assuming  the  name  in  which  the 
business  had  been  previously  carried  on,  succeeded  to  the  old  busi- 
ness, and  has  carried  on  its  own  business  under  the  same  name  for 
four  years ;  taking  the  defendant,  Spangler,  into  its  employ  as  an 
officer.  Upon  entering  this  employment  of  the  complainant,  the  de- 
fendant made  no  contract  that  on  ceasing  to  be  so  employed  he 
should  not  be  at  liberty  to.  state  his  connection  with  the  company 
which  had  employed  him.  Having  been  with  the  company,  as  an  offi- 
cer, for  four  years,  he  is  entitled,  on  leaving  its  employ,  and  in  the  ab- 
sence of  any  contract,  to  state  truly  the  fact  of  his  connection ;  and, 
in  my  judgment,  any  implied  obligation  connected  with  the  sale  of  the 
good  will  to  the  company  originally  cannot,  on  any  facts  now  ap- 
pearing in  the  case,  be  extended  to  prevent  his  making  a  statement 
of  his  connection  with  the  company  of  which  he  was,  for  four  years, 
director  and  officer. 

The  injunction  against  the  use  of  the  name  for  the  purpose  of 
stating  his  former  connection  with  the  complainant  must  therefore 
be  denied,  and  the  fact  that  the  use  of  the  complainant's  name  for  this 
purpose  may  also  tend  to  detract  from  the  business  which  had  for- 
merly belonged  to  the  old  good  will  which  he  had  sold  cannot  de- 
prive him  of  the  lawful  use  of  the  name.  The  application  here  is  to 
prevent  the  use  of  the  name  altogether,  and  if,  for  any  purpose  de- 
fendant has  the  right  to  use  the  name,  it  cannot  be  altogether  re- 
strained. 


TITLE  TO  PABTNEESHIP  PEOPEETT  87 

IV.  Title  to  Partnership  Property— How  Taken  and  Held  * 


HENDREN  et  al.  v.  WING  et  al. 

(Supreme  Court  of  Arkansas,  1895.    GO  Ark.  561,  31  S.  W.  149,  46  Am.  St.  Rep. 

218.) 

Replevin  by  D.  R.  Wing  and  others,  partners  as  the  Arkansas  Ma- 
chine &  Supply  Company,  against  G.  H.  Hendren  and  others.  Judg- 
ment for  plaintiffs.    Defendants  appeal. 

The  appellees,  D.  R.  Wing,  C.  E.  Stephens,  and  Joseph  Eggleston, 
are  partners  doing  business  under  the  firm  name  of  Arkansas  Machin- 
ery &  Supply  Company.  In  the  course  of  their  business  as  such  firm 
they  sold  one  E.  H.  Miller  the  following  machinery:  One  35  horse 
power  return  tubular  boiler,  with  fixtures  and  fittings;  and  one  35 
horse  power  C.  &  T.  engine  complete,  with  fixtures  and  connections. 
For  this  property  Miller  agreed  to  pay  $906.50,  and  he  gave  his  notes 
for  that  amount,  payable  in  installments.  Afterwards,  to  further  se- 
cure the  payment  of  these  notes,  Miller  executed  a  mortgage  to  said 
Arkansas  Machinery  &  Supply  Company,  including  in  said  mortgage 
the  machinery  purchased  and  also  other  property.  Miller  at  this  time 
was  also  indebted  to  appellants,  and  to  secure  the  same  had  previously 
given  them  a  mortgage  on  another  boiler  and  engine.  He  disposed 
of  this  machinery  without  appellants'  consent,  and  replaced  it  with  the 
machinery  in  controversy.  Appellants  obtained  possession  of  the  boiler 
and  engine  purchased  from  appellees  and  claim  the  right  to  hold  same 
in  lieu  of  the  boiler  and  engine  wrongfully  disposed  of  by  Miller. 
Appellees  brought  replevin  to  recover  the  same.  Their  action  was 
resisted  on  the  ground  that  the  mortgage  to  the  Arkansas  Machinery 
&  Supply  Company,  under  which  appellees  claimed,  did  not  contain 
the  name  of  either  a  natural  or  artiticial  person,  and  was  therefore 
void.  The  circuit  court  held  that  the  mortgage  was  valid,  and  gave 
judgment  in  favor  of  appellees. 

RiDDiCK,  J.*  The  Arkansas  Machinery  &  Supply  Company  is  not 
a  corporation,  but  it  is  a  business  name  of  a  firm  of  partners.  The 
question  for  us  to  determine  is  whether  a  chattel  mortgage  executed 
to  it  as  such  partnership  is  valid  at  law.  It  was  said  by  Mr.  Justice 
Eakin,  in  Percifull  v.  Piatt,  36  Ark.  464,  that  "a  partnership  as  such 
cannot  at  law  be  the  grantee  in  a  deed  or  hold  real  estate."  "The 
legal  title,"  said  he,  "must  vest  in  some  person,  and  a  partnership  is 
not  a  corporation.  If  the  title  be  made  to  all  the  partners  by  name, 
they  hold  the  legal  title  as  tenants  in  common.    *    *    ♦    If  the  deed  be 

1  For  a  discussion  of  principles,  see  Giliuore  on  Partnership,  §  52. 
8  Part  of  the  opinion  is  omitted. 
Gilm.Pakt. — 7 


98  NATURE    AND    CHARACTERISTICS 

to  a  name  adopted  as  the  firm  style,  which  includes  the  name  of  no 
party,  it  passes  nothing  at  law."  He  proceeds,  then,  to  say  that  in 
equity  the  rule  is  different.  A  deed  or  mortgage  of  real  estate  to  part- 
ners, describing  them  only  by  their  firm  name,  will  be  enforced  in  equi- 
ty, whether  such  firm  name  includes  the  name  of  one  or  more  of  the 
partners  or  not.  Chicago  Lumber  Co.  v.  Ashworth,  26  Kan.  212; 
Bates,  Partn.  §  296,  and  authorities  there  collated.  But,  as  this  is  an 
action  at  law,  it  is  contended  that  the  strict  rule  of  law  with  reference 
to  the  conveyance  of  real  estate  to  partnerships  must  apply.  The  de- 
cisions in  regard  to  transfers  of  real  estate  to  partnerships  are  based 
on  the  old  rule  stated  by  Judge  Eakin,  that  "a  partnership,  as  such, 
cannot  at  law  be  the  grantee  in  a  deed  or  hold  real  estate."  This  rule 
does  not  apply  to  personal  property.  On  the  contrary,  a  partnership, 
as  such,  can  at  law  be  the  vendee  in  a  bill  of  sale  or  other  conveyance 
of  personal  property.  The  custom  of  the  country  teaches  us  that  this 
is  so.  The  business  of  the  country  is  largely  carried  on  by  partners 
under  partnership  names  which  frequently  do  not  contain  the  name 
of  any  person.  Vast  quantities  of  personal  property  of  all  kinds  are 
contracted  for,  bought,  and  sold  by  such  firms  under  their  firm  names 
each  year,  and  their  right  to  thus  buy  and  sell  goes  unchallenged.  A 
consideration  of  this  fact  shows  that  there  is  a  wide  distinction  be- 
tween the  rights  of  partnerships  at  law  in  regard  to  the  buying  and 
selling  of  personal  property  and  the  restrictions  which  prevail  there- 
in in  regard  to  transfers  of  real  estate.  A  mortgage  is  only  a  con- 
veyance for  the  purpose  of  securing  a  debt.  If  a  bill  of  sale  conveying 
personal  property  to  a  partnership  by  its  firm  name  is  valid,  we  see 
no  reason  why  a  mortgage  of  personal  property  to  a  partnership  should 
not  be  upheld  under  like  circumstances.  It  is  true  that  the  statute  re- 
quires certain  formalities  in  regard  to  acknowledging  and  recording 
mortgages  in  order  to  give  notice  to  third  parties.  But  there  is  noth- 
ing in  the  statute  which  renders  invalid  mortgages  of  personal  property 
executed  to  a  partnership  by  its  firm  name.  Such  a  conveyance  to  a 
firm  is  just  as  effectual  as  if  the  name  of  each  partner  had  been  set 
out  in  the  mortgage.  Henderson  v.  Gates,  52  Ark.  373,  12  S.  W.  780'; 
Kellogg  v.  Olson,  34  Minn.  103,  24  N.  W.  364;  Byam  v.  Bickford, 
140  Mass.  32,  2  N.  E.  G87;  Brunson  v.  Morgan,  76  Ala.  593;  Chi- 
cago Lumber  Co.  v.  Ashworth,  2G  Kan.  212.  We  therefore  conclude 
that  the  judgment  of  the  circuit  court  in  regard  to  the  validity  of  the 
mortgage  was  correct,  and  it  is  affirmed.     *     *     ♦ 


GILLE  V.  HUNT  et  al. 
(Supreme  Court  of  Minnesota,  1886.    35  Minn.  357,  29  N.  W.  2.) 

GiLFiLLAN,  C.  J.®  Action  under  the  statute  to  determine  adverse 
claims  to  real  estate,  each  party  claiming  the  title.  July  25,  1856,  Jared 
S.  Demman  owned  the  premises,  and  on  that  day  executed  a  mortgage 

»  Part  of  the  opinion  is  omitted. 


TITLE  TO  PARTNERSHIP  PROPERTr  99 

thereon  to  "D.  B.  Dorman  &  Co.,"  containing  the  usual  power  of 
sale,  and  which  was,  on  the  same  day,  duly  recorded.  October  7,  1856, 
Dcmman  conveyed  the  premises  to  Peter  Poncin,  by  deed  duly  record- 
ed the  next  day.  On  the  same  day,  evidently  either  at  the  same  time 
of  or  after  the  execution  of  this  last  deed,  D.  B.  Dorman  executed  to 
Poncin  a  deed  of  quitclaim  and  release  of  the  premises,  which  was 
recorded  October  8,  1856.  Plaintiff  claims  under  Poncin.  "D.  B.  Dor- 
man &  Co."  was  a  partnership  under  that  name,  composed  of  D.  B. 
Dorman  and  Ovid  Pinncy,  though  that  fact  does  not  appear  to  have 
been  stated  in  the  mortgage.  April  15,  1857,  Dorman  executed  to 
Pinney  an  assignment  of  the  mortgage  recorded  September  13,  1859. 
In  May,  1804,  Pinney  proceeded  to  foreclose  the  mortgage  under  the 
power  of  sale,  signing  his  name  to  the  notice  of  sale,  "Ovid  Pinney, 
Mortgagee  and  Assignee."  At  the  sale  he  became  the  purchaser,  and 
received  from  the  sheriff  the  usual  certificate.  The  defendants  claim 
under  the  mortgage  and  foreclosure. 

The  case  turns  mainly  on  the  question,  in  whom  was  the  legal  title 
to  the  mortgage;  that  is,  who  was  in  law  the  mortgagee?  Was  it 
D.  B.  Dorman,  or  was  it  the  partnership  or  the  parties  doing  business 
under  the  name  D.  B.  Dorman  &  Co.?  A  mortgage  of  real  estate, 
though  it  is  in  effect  but  a  lien  or  security,  is  in  form  a  conveyance  of 
an  estate  or  interest  in  land  (Morrison  v.  Mendenhall,  18  Minn.  232 
[Gil.  212]),  and  must  be  governed  by  the  same  rules  as  to  its  execu- 
tion and  validity,  and  the  capacity  of  the  parties,  and  their  proper  des- 
ignation, as  are  applied  to  a  conveyance.  It  has  been  affirmed  in  sev- 
eral cases  in  this  court  that  the  legal  title  to  real  estate  can  be  held  only 
by  a  person,  or  a  corporate  entity,  which  is  deemed  such  in  law ;  and 
that,  therefore,  a  partnership  cannot,  as  such,  take  and  hold  such  legal 
title.  Thus,  in  German  Land  Ass'n  v.  Scholler,  10  Minn.  331  (Gil. 
260),  it  was  decided  that  the  plaintiff,  being  only  a  voluntary  associa- 
tion of  persons,  unincorporated,  had  no  legal  capacity  to  take  or  hold 
real  property.  The  rule  was  recognized  in  Morrison  v.  Mendenhall; 
and  in  Tidd  v.  Rines,  26  Minn.  201,  2  N.  W.  497,  it  was  decided  that 
a  conveyance  to  a  partnership  by  its  first  name  did  not  vest  in  it  any 
legal  title  or  estate,  because  a  partnership,  as  such,  is  not  recognized 
in  law  as  a  person;  so  that  even  had  it  been  stated  in  the  mortgage 
tfxat  the  name  inserted  as  the  mortgagee  was  that  of  a  partnership,  it 
would  not  have  made  the  partnership  mortgagee.  Nor,  as  we  think, 
would  the  individual  partners  (other  than  the  one  named)  be  the 
mortgagee. 

It  is  true  that  the  grantee  in  a  conveyance  need  not  be  named,  pro- 
vided he  be  described  with  sufficient  definiteness  and  certainty,  as 
where  he  is  indicated  by  a  title,  or  an  office,  and  there  is  but  one  such; 
as  in  Lady  Superior  v.  McNamara,  3  Barb.  Ch.  (N.  Y.)  375,  49  Am. 
Dec.  184,  where  a  conveyance  to  the  "Lady  Superior"  of  a  designated 
convent  was  held  good  to  vest  the  title  in  a  person  then  lady  superior; 
but  the  court  referred  with  approval  to  Duncan  v.  Beard,  2  Nott  & 
McC.  (S.  C.)  400,  in  which  it  was  held  that  a  conveyance  to  one  and 


100  NATURE    AND    CHARACTERISTICS 

his  "associates"  vested  title  in  none  but  the  person  named,  the  term 
"associates"  being  too  indefinite  to  carry  the  title  to  the  persons  intend- 
ed by  it.  There  are  some  authorities  which  seem  to  hold  that  such  a 
conveyance  would  be  good  to  the  persons  so  designated,  and  that  it 
may  be  proved  by  parol  who  they  are;  but  we  think  these  cases  go  a 
great  way  towards  holding  that  a  conveyance  of  real  estate  may  vest 
partly  in  parol,  and  when  we  consider  the  infinite  confusion  in  titles 
to  real  estate — in  which  there  ought  to  be  great  definiteness  and  cer- 
tainty— such  a  rule  might  let  in,  we  do  not  hesitate  to  decide  that  the 
proposition  that  such  a  designation  is  too  indefinite  and  uncertain  rests 
in  better  reason  and  authority.  Where  the  style  of  a  partnership  is 
inserted  as  a  grantee,  and  it  contains  the  name  or  names  of  one  or 
more  of  the  partners,  there  is  no  reason  why  the  title  should  not  vest 
in  the  partners  so  named ;  and  the  authorities  are  to  the  effect  that  it 
would. 

The  legal  title  to  the  mortgage  in  question  was,  then,  in  D.  B.  Dor- 
man.  He  was  the  only  person  through  whom  legal  title  could  be 
made,  under  the  mortgage.    *    * 

Judgment  affirmed. 


4c 


V.  Conversion  of  Partnership  Realty  into  Personalty  ** 


DARBY  v.  DARBY  et  al. 
(High  Court  of  Chancery,  1856.    3  Drew.  405.) 

Alfred  Darby  and  Abraham  Darby  embarked  in  a  joint  specula- 
tion as  partners  in  the  purchase  of  real  estate,  to  be  laid  out  in  build- 
ing sites  and  resold  for  their  joint  profit.  There  was  no  actual  deed 
or  written  instrument  of  partnership.  While  the  arrangement  con- 
tinued, and  while  a  large  portion  of  the  land  thus  bought  remained  un- 
sold, Alfred  Darby  died. 

This  was  a  bill  filed  by  his  administratrix  for  the  administration  of 
his  estate.  The  principal  question  was  whether  Alfred  Darby's  share 
of  the  unrealized  real  estate  descended  to  his  heir  at  law,  or  whether 
it  passed  as  personal  estate  to  his  personal  representative. 

Sir  R.  T.  KiNDERSi^EY,  V.  C.^^  [after  reviewing  the  English  cases,] 
The  result,  then,  of  the  authorities  may  be  thus  stated :  Lord  Thurlow 
was  of  opinion  that  a  special  contract  was  necessary  to  convert  the 
land  into  personalty;  and  Sir  W.  Grant  followed  that  decision.  Lord 
Eldon  on  more  than  one  occasion  strongly  expressed  his  opinion  that 
Lord  Thurlow's  decision  was  wrong.  Sir  J.  Leach  clearly  decided  in 
three  cases  that  there  was  conversion  out  and  out;  and  Sir  L.  Shad- 
well,  in  the  last  case  before  him,  clearly  decided  in  the  same  way. 
That  is  the  state  of  the  authorities. 

10  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  53,  54. 

11  Part  of  opinion  is  omitted  and  statement  of  facts  rewritten. 


CONVEESION   OF  PARTNERSHIP    REALTY   INTO   PERSONALTY         101 

Now  it  appears  to  me  that,  irrespective  of  authority,  and  looking  at 
the  matter  with  rclcrcuce  to  ijrinciples  well  established  in  this  court, 
if  partners  purchase  land  merely  for  the  purpose  of  their  trade,  and  pay 
for  it  out  of  the  partnership  property,  that  transaction  makes  the  prop- 
erty personalty,  and  effects  a  conversion  out  and  out. 

What  is  the  clear  principle  of  this  court  as  to  the  law  of  partnership? 
It  is  that  on  the  dissolution  of  the  partnership  all  the  property  belong- 
ing to  the  partnership  shall  be  sold,  and  the  proceeds  of  the  sale,  after 
discharging  all  the  partnership  debts  and  liabilities,  shall  be  divided 
among  the  partners  according  to  their  respective  shares  in  the  capital. 
That  is  the  general  rule.  It  requires  no  special  stipulation.  It  is  in- 
herent in  the  very  contract  of  partnership.  That  the  rule  applies  to  all 
ordinary  partnership  property  is  beyond  all  question,  and  no  one  part- 
ner has  a  right  to  insist  that  any  particular  part  or  item  of  the  part- 
nership property  shall  remain  unsold,  and  that  he  shall  retain  his  own 
share  of  it  in  specie.  This  principle  is  clearly  laid  down  by  Lord  Eldon 
in  Crawshay  v.  Collins,  15  Ves.  218,  and  by  Sir  W.  Grant,  in  Feather- 
stonhaugh  v.  Fenwick,  17  Ves.  298,  and  the  right  of  each  partner  to 
insist  on  a  sale  of  all  the  partnership  property,  which  arises  from 
what  is  implied  in  the  contract  of  partnership,  is  just  as  strmgent  as 
a  special  contract  would  be.  If,  then,  this  rule  applies  to  ordinary 
stock  in  trade,  why  should  it  not  apply  to  all  kinds  of  partnership 
property?  Suppose  that  partners,  for  the  purpose  of  carrying  on  their 
business,  purchase  out  of  the  funds  of  the  partnership  leasehold  estate, 
or  take  a  lease  of  land,  paying  the  rent  out  of  the  partnership  funds ; 
can  it  be  doubted  that  the  same  rule  which  applies  to  ordinary  chattels 
would  apply  to  such  leasehold  property?  I  do  not  think  it  was  ever 
questioned  that,  on  a  dissolution,  the  right  of  each  partner  to  have  the 
partnership  effects  sold  applies  to  leasehold  property  belonging  to  the 
partnership  as  much  as  to  any  other  stock  in  trade.  No  one  partner 
can  insist  on  retaining  his  share  unsold.  Nor  would  it  make  any  dif- 
ference in  whom  the  legal  estate  was  vested,  whether  in  one  of  the 
partners  or  in  all.  This  court  would  regulate  the  matter  according  to 
the  equities.  And  Sir  W.  Grant  so  decided  in  Featherstonhaugh  v. 
Fenwick. 

If,  then,  the  rule  applies,  not  only  to  ordinary  stock  in  trade,  but 
also  to  a  lease  for  years,  suppose,  next,  that  the  partnership,  instead  of 
purchasing  a  term  of  years,  were  (whether  from  necessity  or  choice) 
to  purchase  land  in  fee ;  if  the  land  is  necessary  for  the  partnership 
business,  and  bought  with  the  partnership  assets,  what  difference  can 
it  make  whether  the  real  estate  bought  is  leasehold  or  in  fee  ?  Let  it 
be  once  established  that  the  property  purchased  is  partnership  property 
and  it  then  comes  under  the  operation  of  those  principles  which  arise 
out  of  the  partnership  contract ;  and  there  seems  to  be  no  reason  why 
the  operation  of  those  principles  is  to  be  restricted  to  any  particular 
class  or  species  of  partnership  property.  The  observations  of  Lord 
Eldon  in  Crawshay  v.  Maule  [1  Swanst.  495],  show  that  in  his  opin- 
ion the  rij^ht  to  a  sale  on  a  dissolution  of  partnership  does  not  in  any 


102  ,  NATURE    AND    CHARACTERISTICS 

degree  depend  on  the  nature  of  the  property.  Nor  could  it  be  material 
in  this  case,  any  more  than  on  the  purchase  of  a  leasehold  interest,  in 
whom  the  legal  estate  was  vested. 

I  should,  therefore,  feel  no  hesitation  in  coming  to  this  conclusion: 
That  the  mere  contract  of  partnership,  without  any  express  stipulation, 
involves  in  it  an  implied  contract,  quite  as  stringent  as  if  it  were  ex- 
pressed, that  at  the  dissolution  of  the  partnership  all  the  property  then 
belonging  to  the  partnership,  whether  it  be  ordinary  stock  in  trade,  or 
a  leasehold  interest,  or  a  fee-simple  estate  in  land,  shall  be  sold,  and 
the  net  proceeds,  after  satisfying  all  the  partnership  debts  and  lia- 
bilities, be  divided  among  the  partners,  and  that  each  partner,  and  the 
representatives  of  any  deceased  partner,  have  a  right  to  insist  on  this 
being  done. 

Next,  what  is  the  doctrine  of  this  court  as  to  conversion?  If  a 
testator  seised  of  real  estate  devises  it  for  sale,  and  directs  that  the 
proceeds  of  the  sale  shall  be  divided  among  certain  persons,  so  that 
each  of  the  cestuis  que  trustent  is  entitled  to  say  he  will  have  it  sold 
and  will  take  his  share  of  the  proceeds,  that  real  estate  is  in  equity 
converted  into  personalty;  and  so,  if  three  persons  contract  that  certain 
real  property  belonging  to  them  shall  be  sold,  and  the  proceeds  be  di- 
vided among  them,  so  that  each  one  of  them  has  a  right  to  insist  that 
it  shall  be  sold,  and  that  he  shall  have  his  share  of  the  proceeds  as 
money,  that  real  property  is  in  equity  converted  into  personalty,  and 
if  any  one  of  them  dies  while  the  property  remains  unsold  his  share 
is  personalty,  as  between  his  heir  and  his  personal  representatives. 

Now,  if  it  be  established  that  by  the  contract  of  partnership  all  the 
partnership  property  is  to  be  sold  at  the  dissolution  of  the  partner- 
ship, then  any  real  property  which  has  become  the  property  of  the  part- 
nership becomes,  by  force  of  the  partnership  contract,  converted  into 
personalty;  and  that,  not  merely  as  between  the  partners,  to  the  ex- 
tent of  discharging  the  partnership  debts,  but  as  between  the  real  and 
personal  representatives  of  any  deceased  partner. 

That  this  is  so  I  should,  in  the  absence  of  all  authority,  have  decided 
upon  the  principle ;  and  when  I  find,  notwithstanding  the  decision  of 
Lord  Thurlow,  followed  by  Sir  W.  Grant,  that  Lord  Eldon  was  clearly 
of  opinion  that  real  property  purchased  by  a  partnership  for  the  part- 
nership purposes  and  with  the  partnership  funds  becomes  personalty, 
that  Sir  J.  Leach  repeatedly  so  decided  without  any  doubt,  and  that 
Sir  L.  Shadwell  also  decided  the  last  case  in  the  same  way,  I  can  have 
no  difficulty  in  coming  to  the  conclusion  that,  whenever  a  partnership 
purchase  real  estate  for  the  partnership  purposes  and  with  the  partner- 
ship funds,  it  is,  as  between  the  real  and  personal  representatives  of  the 
partners,  personal  estate. 

Now,  this  case  is  not  the  ordinary  case  where  persons  carrying  on 
the  ordinary  business  of  a  commercial  or  manufacturing  partnership 
have  found  it  necessary  to  purchase  real  estate  for  partnership  pur- 
poses. That  is  not  the  case.  Here  they  bought  land  as  the  stock  in 
trade,  by  the  sale  of  which  they  were  to  make  their  profits.    The  land 


CONVERSION   OF   PARTNERSHIP   REALTY   INTO   PERSONALTY        103 

was  not  in  the  nature  of  plant,  but  was  the  very  subject-matter  of 
their  trade.  Does  that  make  any  difference?  If  it  does,  I  think  it  is 
in  favor  of  treating  it  as  converted,  because  the  real  estate  is  here  clear- 
ly put  in  the  same  position  as  ordinary  stock  in  trade ;  and  it  appears 
to  me  that,  if  I  entertained  more  doubt  than  I  do  on  the  general  ques- 
tion, that  doubt  would  in  this  case  be  very  much  diminished  by  the 
circumstance  that  here  the  real  estate  is  itself  bought  for  the  very  pur- 
pose of  selling  it  again.  The  very  intention  of  the  partnership  was 
to  buy  land  to  resell  it.  That  is  their  very  contract,  and  without  sell- 
ing the  land  again  there  would  be  no  partnership  business.  The  part- 
nership was  for  the  purpose  of  buying  land  to  parcel  it  out  in  plots, 
and  to  sell  them  again,  and  each  partner  had  a  right  to  say  he  would 
have  that  contract  carried  out.  We  have  here  what  Lord  Thurlow 
wanted  in  Thornton  v.  Dixon,  an  actual  contract  that  the  land  shall 
be  sold. 

I  must,  therefore,  decide  that  the  share  of  A.  Darby  was  personal 
estate,  and  passed  to  his  personal  representatives. 


DYER  V.  CLARK  et  al. 

(Supreme  Judicial  Court  of  Massachusetts,  1843.     5  Mete.  5G2,  39  Am.  Dee 

G97.) 

Bill  in  equity.  The  plaintiff  is  surviving  partner  of  the  firm  of  Bur- 
leigh &  Dyer,  and  the  defendants  are  the  administrator,  the  widow, 
and  the  minor  children  of  the  deceased  partner,  Stevens  Burleigh. 
The  case  was  heard  on  the  bill,  the  answer,  and  a  master's  report. 

Shaw,  C.  J.^^  This  is  a  suit  in  equity  by  the  surviving  partner  of 
the  firm  of  Burleigh  &  Dyer,  established  by  articles  of  copartnership 
under  seal,  for  the  purpose  of  carrying  on  the  business  of  distillers. 
The  principal  question  is  one  which  has  arisen  in  several  other  cases, 
and  is  this:  Whether  real  estate,  purchased  by  copartners  from  part- 
nership funds,  to  be  held,  used,  and  occupied  for  partnership  purposes, 
is  to  be  deemed  in  all  respects  real  estate  in  this  commonwealth,  to 
vest  in  the  partners  severally  as  tenants  in  common,  so  that,  on  the 
decease  of  either,  his  share  will  descend  to  his  heirs,  be  chargeable 
with  his  wife's  dower,  and  in  all  respects  held  and  treated  as  real  es- 
tate, held  by  the  deceased  partner  as  a  tenant  in  common ;  or  whether 
it  shall  be  regarded  as  quasi  personal  property,  so  as  to  be  held  and 
appropriated  as  personal  property,  first,  to  the  liquidation  and  discharge 
of  the  partnership  debts,  and  to  the  adjustment  of  the  partnership  ac- 
count, and  payment  of  the  amount^  due,  if  any,  to  the  surviving  partner, 
before  it  shall  go  to  the  widow  and  heirs  of  the  deceased  partner. 
This  is  a  new  question  here,  and  comes  now  to  be  decided  for  the 
first  time. 

There  are  some  principles,  bearing  upon  the  result,  which  seem  to 
be  well  settled,  and  may  tend  to  establish  the  grounds  of  equity  and 

12  The  statement  of  facts  is  abridged  and  part  of  the  opinion  is  omitted. 


104  NATURE    AND    CHARACTERISTICS 

law  upon  which  the  decision  must  be  made.  It  is  considered  as  estab- 
lished law  that  partnership  property  must  first  be  applied  to  the  pay- 
ment of  partnership  debts,  and  therefore  that  an  attachment  of  part- 
nership property  for  a  partnership  debt,  though  subsequent  in  time, 
will  take  precedence  of  a  prior  attachment  of  the  same  property  for 
the  debt  of  one  of  the  partners.  It  is  also  considered  that,  however 
extensive  the  partnership  may  be,  though  the  partners  may  hold  a 
large  amount  and  great  variety  of  property,  and  owe  many  debts,  the 
real  and  actual  interest  of  each  partner  in  the  partnership  stock  is  the 
net  balance  which  will  be  coming  to  him  after  payment  of  all  the  part- 
nership debts  and  a  just  settlement  of  the  account  between  himself 
and  his  partner  or  partners.    1  Ves.  Sr.  242. 

The  time  of  the  dissolution  of  a  partnership  fixes  the  time  at 
which  the  account  is  to  be  taken,  in  order  to  ascertain  the  relative 
rights  of  the  partners  and  their  respective  shares  in  the  joint  fund. 
The  debts  may  be  numerous,  and  the  funds  widely  dispersed  and  diffi- 
cult of  collection ;  and  therefore  much  time  may  elapse  before  the  af- 
fairs can  be  wound  up,  the  debts  paid,  and  the  surplus  put  in  a  condi- 
tion to  be  divided.  But,  whatever  time  may  elapse  before  the  final 
settlement  can  be  practically  made,  that  settlement,  when  made,  must 
relate  back  to  the  time  when  the  partnership  was  dissolved,  to  deter- 
mine the  relative  interests  of  the  partners  in  the  fund. 

When,  therefore,  one  of  the  partners  dies,  which  is  de  facto  a  dis- 
solution of  the  partnership,  it  seems  to  be  the  dictate  of  natural  equity 
that  the  separate  creditors  of  the  deceased  partner,  the  widow,  heirs, 
legatees,  and  all  others  claiming  a  derivative  title  to  the  property  of 
the  deceased  and  standing  on  his  rights,  should  take  exactly  the  same 
measure  of  justice  as  such  partner  himself  would  have  taken,  had  the 
partnership  been  dissolved  in  his  Hfetime;  and  such  interest  would 
be  the  net  balance  of  the  account,  as  above  stated. 

Such,  indeed,  is  the  result  of  the  application  of  the  well-known  rules 
of  law,  when  the  partnership  stock  and  property  consist  of  personal 
estate  only;  and,  as  partnerships  were  formed  mainly  for  the  promo- 
tion of  mercantile  transactions,  the  stock  commonly  consisted  of  cash, 
merchandise,  securities,  and  other  personal  property,  and  therefore  the 
rules  of  law  governing  that  relation  would  naturally  be  framed  with 
more  especial  reference  to  that  species  of  property.  It  is  therefore 
held  that  on  the  decease  of  one  of  the  partners,  as  the  surviving  partner 
stands  chargeable  with  the  whole  of  the  partnership  debts,  the  inter- 
est of  the  partners  in  the  chattels  and  choses  in  action  shall  be  deemed 
so  far  a  joint  tenancy  as  to  enable  the  surviving  partner  to  take  the 
property  by  survivorship,  for  all  purposes  of  holding  and  administer- 
ing the  estate,  until  the  effects  are  reduced  to  money  and  the  debts 
paid,  though,  for  the  purpose  of  encouraging  trade,  it  is  held  that  the 
harsh  doctrine  of  the  jus  accrescendi,  which  is  an  incident  of  joint 
tenancy  at  the  common  law,  as  well  in  real  as  in  personal  estate,  shall 
not  apply  to  such  partnership  property;  but,  on  the  contrary,  when  the 
debts  are  all  paid,  the  effects  of  the  partnership  reduced  to  money, 


CONVERSION   or  PAETNEBSHIP   REALTY   INTO    PERSONALTY         105 

and  the  purposes  of  the  partnership  accomplished,  the  surviving  partner 
shall  be  held  to  account  with  the  representatives  of  the  deceased  for 
his  just  share  of  the  partnership  funds. 

Then  the  question  is  whether  there  is  anything  so  peculiar  in  the 
nature  an,d  characteristics  of  real  estate  as  to  prevent  these  broad  prin- 
ciples of  equity  from  applying  to  it.  So  long  as  real  estate  is  governed 
by  the  strict  rules  of  the  common  law,  there  would  be,  certainly,  great 
difficulty  in  shaping  the  tenure  of  the  legal  estate  in  such  form  as  to 
accomplish  these  objects.  Should  the  partners  take  their  conveyance 
in  such  mode  as  to  create  a  joint  tenancy,  as  they  still  may,  though 
contrary  to  the  policy  of  our  law,  still  it  would  not  accomplish  the  pur- 
poses of  the  parties,  first,  because  either  joint  tenant  might,  at  his  op- 
tion, break  the  joint  tenancy  and  defeat  the  right  of  survivorship  by 
an  alienation  of  his  estate,  or  (what  would  be  still  more  objectionable) 
the  right  of  survivorship  at  the  common  law  would  give  the  whole 
estate  to  the  survivor,  without  liability  to  account,  and  thus  wholly  de- 
feat the  claims  of  the  separate  creditors,  and  of  the  widow  and  heirs 
of  the  deceased  partner. 

But  we  are  of  opinion  that  the  object  may  be  accomplished  in  equity, 
so  as  to  secure  all  parties  in  their  just  rights,  by  considering  the  legal 
estate  as  held  in  trust  for  the  purpose  of  the  partnership;  and,  since 
this  court  has  been  fully  empowered  to  take  cognizance  of  all  implied 
as  well  as  express  trusts  and  carry  them  into  effect,  there  is  no  diffi- 
culty, but,  on  the  contrary,  great  fitness,  in  adopting  the  rules  of 
equity  on  the  subject  which  have  been  adopted  for  the  like  purpose  in 
England  and  in  some  of  our  sister  states.  And  it  appears  to  us  that, 
considering  the  nature  of  a  partnership  and  the  mutual  confidence  in 
each  other  which  that  relation  implies,  it  is  not  putting  a  forced  con- 
struction upon  their  act  and  intent  to  hold  that,  when  property  is  pur- 
chased in  the  name  of  the  partners  out  of  partnership  funds  and  for 
partnership  use,  though  by  force  of  the  common  law  they  take  the 
legal  estate  as  tenants  in  common,  yet  that  each  is  under  a  conscien- 
tious obligation  to  hold  that  legal  estate  until  the  purposes  for  which  it 
was  so  purchased  are  accomplished,  and  to  appropriate  it  to  those  pur- 
poses, by  first  applying  it  to  the  payment  of  the  partnership  debts,  for 
which  both  his  partner  and  he  himself  are  liable,  and  until  he  has  comF 
to  a  just  account  with  his  partner.  Each  has  an  equitable  interest  in 
that  portion  of  the  legal  estate  held  by  the  other  until  the  debts  ob- 
ligatory on  both  are  paid  and  his  own  share  of  the  outlay  for  partner- 
ship stock  is  restored  to  him.  This  mutual  equity  of  the  parties  is 
greatly  strengthened  by  the  consideration  that  partners  may  have  con- 
tributed to  the  capital  stock  in  unequal  proportions,  or,  indeed,  that  one 
may  have  advanced  the  whole.  Take  the  case  of  a  capitalist,  who  is 
willing  to  put  in  money,  but  wishes  to  take  no  active  concern  in  the 
conduct  of  business,  and  a  man  who  has  skill,  capacity,  integrity,  and 
industry  to  make  him  a  most  useful  active  partner,  but  without  prop- 
erty, and  they  form  a  partnership.     Suppose  real  estate,  necessary  to 


106  NATURE    AND    CHARACTERISTICS 

the  carrying  on  of  the  business  of  the  partnership,  should  be  purchased 
out  of  the  capital  stock  and  on  partnership  account,  and  a  deed  taken 
to  them  as  partners,  without  any  special  provisions.  Credit  is  obtained 
for  the  firm,  as  well  on  the  real  estate  as  the  other  property  of  the 
firm.  What  are  the  true  equitable  rights  of  the  partners,  as  resulting 
from  their  presumed  intentions,  in  such  real  estate?  Is  not  the  share 
of  each  to  stand  pledged  to  the  other,  and  has  not  each  an  equitable 
lien  on  the  estate,  requiring  that  it  shall  be  held  and  appropriated,  first 
to  pay  the  joint  debt,  then  to  repay  the  partner  who  advanced  the  cap- 
ital, before  it  shall  be  applied  to  the  separate  use  of  either  of  the 
partners?  The  creditors  have  an  interest,  indirectly,  in  the  same  ap- 
propriation, not  because  they  have  any  lien,  legal  or  equitable  (2  Story 
on  Eq.  §  1253),  upon  the  property  itself,  but  on  the  equitable  prin- 
ciple which  determines  that  the  real  estate  so  held  shall  be  deemed  to 
constitute  part  of  the  fund  from  which  their  debts  are  to  be  paid  be- 
fore it  can  legally  or  honestly  be  diverted  to  the  private  use  of  the 
partners.  Suppose  this  trust  is  not  implied;  what  would  be  the  con- 
dition of  the  parties,  in  the  case  supposed,  in  the  various  contingencies 
which  might  happen?  Suppose  the  elder  and  wealthy  partner  were 
to  die.  The  legal  estate  descends  to  his  heirs,  clothed  with  no  trust 
in  favor  of  the  surviving  partner.  The  latter,  without  property  of  his 
own,  and  relying  on  the  joint  fund,  which,  if  made  liable,  is  sufficient 
for  the  purpose,  is  left  to  pay  the  whole  of  the  debt,  whilst  a  portion, 
and  perhaps  a  large  portion,  of  the  fund  bound  for  its  payment  is 
withdrawn.  Or  suppose  the  younger  partner  were  to  die,  and  his 
share  of  the  legal  estate  should  go  to  his  creditors,  wife,  or  children, 
and  be  withdrawn  from  the  partnership  fund ;  it  would  work  mani- 
fest injustice  to  him  who  had  furnished  the  fund  from  which  it  was 
purchased.  But  treating  it  as  a  trust,  the  rights  of  all  parties  will  be 
preserved.  The  legal  estate  will  go  to  those  entitled  to  it,  subject 
only  to  a  trust  and  equitable  lien  to  the  surviving  partner,  by  which 
so  much  of  it  shall  stand  charged  as  may  be  necessary  to  accomplish 
the  purposes  for  which  they  purchased  it.  To  this  extent,  and  no  fur- 
ther, will  it  be  bound;  and  subject  to  this  all  those  will  take  who  are 
entitled  to  the  property,  namely,  the  creditors,  widow,  heirs,  and  all 
others  standing  on  the  rights  of  the  deceased  partner.    *     *    * 

On  the  facts  of  the  present  case,  we  are  of  opinion  that  the  real 
estate  in  question  was  a  part  of  the  capital  stock,  purchased  out  of  the 
partnership  funds,  for  the  partnership  use,  and  for  the  account  of  the 
firm.     *     *     * 

The  plaintiff  has  received  a  sum  in  rents  and  profits  that  have  ac- 
crued since  his  partner's  death.  The  defendant  Clark,  as  administrator 
of  Burleigh,  the  deceased  partner,  has  sold  an  undivided  half  of  the 
property  as  his,  under  a  license,  and  with  the  assent  of  the  plaintiff. 
The  widow  joined  to  release  her  dower,  for  a  nominal  sum.  But  we 
cannot  perceive  that  the  right  of  the  widow  is  distinguishable  from 
that  of  the  creditors  and  heirs  of  the  deceased  partner.    As  far  as  this 


CONVERSION    OF   PARTNERSHIP    REALTY    INTO    PERSONALTY         107 

estate  was  held  in  trust  by  her  deceased  husband,  she  was  not  entitled 
to  dower.  For  all  beyond  that  she  will  be  entitled,  because  he  held 
it  as  legal  estate,  unless  she  is  barred  by  her  release,  of  which  we  give 
no  opinion. 

The  plaintiff  is  entitled  to  a  decree  charging  the  amount  of  rents 
and  profits  in  his  hands,  and  so  much  of  the  proceeds  of  the  sale  made 
by  the  administrator,  as  will  be  sufficient  to  discharge  the  balance  of 
the  partnership  account;  and  the  rest  of  the  proceeds  will  remain  in 
the  hands  of  Clark,  the  administrator  of  Burleigh,  to  be  distributed 
according  to  law. 


WOODWARD-HOLMES  CO.  v.  NUDD. 

(Supreme  Court  of  Minnesota,  1894.    58  Minn.  236,  59  N.  W.  1010,  27  L.  R.  A. 
340,  49  Am.  St.  Rep.  503.) 

Mitchell,  J.  The  effect  of  the  findings  of  the  trial  court  is  that 
the  real  estate  which  is  the  subject  of  this  action  was  formerly  the 
property  of  a  manufacturing  copartnership  composed  of  defend- 
ant's husband  and  one  Holmes,  having  been  purchased,  paid  for,  and 
used  by  the  firm  as  a  site  for  its  manufacturing  plant,  the  title  being 
taken  in  the  individual  names  of  the  partners ;  that,  in  an  action 
brought  by  one  partner  against  his  copartner  to  dissolve  the  partner- 
ship and  wind  up  its  affairs,  the  property  w^as  ordered  sold  as  one 
parcel,  the  proceeds  to  be  applied  in  payment  of  the  firm  debts, 
and  the  surplus,  if  any,  divided  between  the  partners  according  to 
their  respective  rights ;  that  at  such  sale  it  was  sold  to  plaintiff's 
grantor  for  an  amount  somewhat  in  excess  of  the  sum  required  to 
pay  the  debts  of  the  firm ;  that  this  surplus  was  distributed  between 
the  partners,  no  part  of  it  being  paid  to  defendant;  that  defendant 
was  not  a  party  to  the  action,  and  has  never  joined  in  any  conveyance 
of  the  property.  The  defendant,  as  wife  of  one  of  the  partners, 
claimed  an  inchoate  interest  in  an  undivided  half  of  the  premises, 
and  this  action  was  brought  to  determine  this  adverse  claim. 

It  is  well  known  that  the  English  doctrine  was  that  partnership 
real  estate  is  considered  as  personal  property  for  all  purposes.  The 
doctrine  of  the  American  courts  on  the  subject  is  more  restricted. 
Some  of  the  earlier  decisions  in  New  York  and  Massachusetts  went 
almost  to  the  length  of  entirely  subverting  the  equity  doctrine  preva- 
lent in  England;  but,  as  remarked  by  Chancellor  Kent,  the  other 
American  decisions  are  not  inconsistent  with  the  more  correct  and  im- 
proved view  of  the  English  law.  It  is  now  held  with  practical  una- 
nimity by  the  American  courts  that,  if  partnership  capital  be  invested 
in  land  for  the  benefit  of  the  company,  all  the  incidents  attached  to 
it  which  belong  to  any  other  stock,  so  far  as  consistent  with  the 
statute  of  frauds  and  the  technical  rules  of  conveyancing,  and  that 
it  will  be  treated  as  personal  estate  until  it  has  performed  all  its 
functions  to  the  partnership,   and  thereby  ceases  to  be  any  longer 


108  "  NATURE    AND    CHARACTERISTICS 

partnership  property,  and  until  then  it  is  not  subject  to  either  dow- 
er or  inheritance,  but  that  after  all  the  purposes  of  the  partner- 
ship have  been  thus  accomplished,  whatever  land  remains  in  specie 
will  be  regarded  as  real  estate. 

The  question  is,  at  what  precise  moment  is  it  reconverted  into  real 
estate,  or,  to  speak  more  accurately,  does  it  resume  all  the  attributes 
and  incidents  of  real  property?  We  think  the  answer  is,  the  mo- 
ment the  partnership  is  terminated  and  wound  up  by  judgment  or 
agreement,  and  it  is  determined  that  it  no  longer  forms  a  part  of  the 
partnership  stock,  and  is  not  required  for  its  purposes.  When  a  part- 
nership is  dissolved,  and  its  affairs  wound  up  and  completely  ended, 
and  any  land  remains  in  specie,  unconverted,  this  must  be  deemed  a 
determination  that  it  is  no  longer  a  part  of  the  copartnership  stock, 
and  an  election  to  hold  it  thereafter,  individually,  as  real  estate. 

During  the  continuance  of  the  partnership  the  partners  can  convey 
or  mortgage  it,  in  the  course  of  their  business,  whenever  they  see  fit, 
without  their  wives  joining  in  the  conveyance  or  mortgage,  and  the 
wives  would  have  no  dower  or  other  interest  in  it.  This  is  one  of 
the  very  objects  of  treating  partnership  real  estate  as  personal  prop- 
erty ;  for  otherwise  the  business  of  the  firm  might  be  stopped,  and  the 
partners  unable  to  realize  on  the  assets  of  the  firm,  by  reason  of 
the  wife  of  one  of  them  refusing  to  join  in  the  conveyance  or 
mortgage.  They  have  the  same  power  of  disposition  over  it  for 
the  purposes  of  a  dissolution  of  the  partnership,  the  payment  of 
its  debts,  and  the  distribution  or  division  of  the  capital  among 
themselves;  for  until  that  is  done  the  property  has  not  fulfilled 
its  functions  as  personalty,  or  ceased  to  be  partnership  property. 
And  what  the  partners  may  thus  do  voluntarily  the  court  may  do 
for  them,  in  an  action  brought  to  dissolve  the  partnership  and 
wind  up  its  affairs.  As  the  defendant  was  not  a  party  to  the 
former  action,  she  is,  of  course,  not  estopped  by  it,  nor  is  it  evi- 
dence against  her  of  anything  except  of  the  fact  of  its  own  rendi- 
tion. But  the  material  fact  remains  that  in  the  process  of  the  dis- 
solution of  the  firm,  and  the  winding  up^  of  its  affairs,  in  an  action 
for  that  purpose,  the  land  was  sold  and  converted  into  money,  and 
the  money  distributed  among  the  creditors  and  partners  according 
to  law.  Upon  these  facts,  under  the  rules  already  announced,  the 
land  in  the  hands  of  the  purchaser  is  not  subject  to  any  inchoate  in- 
terest of  the  wives  of  the  partners. 

The  error  which  lies  at  the  foundation  of  the  whole  argument  of 
defendants'  counsel  is  in  the  assumption  that,  at  the  time  of  the  pur- 
chase of  this  property,  it  became  the  individual  real  estate  of  the  hus- 
band, and  that  the  inchoate  right  of  the  wife  under  the  statute  im- 
mediately attached,  subject  only  to  a  lien  for  the  payment  of  part- 
nership debts.  This  is  not  correct,  and  none  of  the  authorities 
that  we  have  found  so  hold.  The  fact  is  that  only  so  much  of  it 
becomes  the  individual  real  estate  of  the  partner  as  remains  in  spe- 


paetnee's  interest  in  paetneeship  peopeett  109 

cie,  unconverted,  after  all  the  purposes  of  the  partnership  have  been 
entirely  fulfilled,  and  it  is  only  to  such  of  it  that  any  inchoate  interest 
of  the  wife  ever  attaches. 

If  counsel's  contention  is  correct  the  partners  could  never,  even 
during  the  active  life  of  the  copartnership,  convey  perfect  title  to 
partnership  land  without  their  wives  joining,  except  to  the  extent  ac- 
tually necessary  to  pay  existing  debts  of  the  firm.  This  would  prac- 
tically involve,  in  every  case  where  one  of  the  wives  refused  to  join 
in  a  conveyance,  the  necessity  of  a  suit  to  which  she  is  made  a  party, 
in  order  to  determine  whether  the  sale  was  necessary  to  pay  debts. 
Any  such  rule  would  hamper  the  business  of  the  firm  to  an  extent 
that  might  practically  defeat  the  purposes  of  the  partnership. 

The  court  below  seems  to  have  laid  special  stress  upon  the  fact 
that  it  was  not  made  to  appear  on  the  trial  that  it  was  necessary 
to  have  sold  all  this  property  to  pay  the  debts  of  the  firm,  but  this 
is  immaterial,  either  under  the  view  of  the  law  which  we  have  tak- 
en, or  under  that  urged  by  counsel.  In  fact,  we  understood  counsel 
to  frankly  concede  this  on  the  argument.  Upon  the  facts  found, 
judgment  ought  to  have  been  ordered  in  favor  of  the  plaintift,  ad- 
judging that  defendant  has  no  interest,  inchoate  or  otherwise,  in  the 
land. 

Cause  remanded,  with  directions  to  the  court  below  to  render  judg- 
ment accordingly. 


VI.  Nature  and  Extent  of  Partner's  Interest  in  Partnership 

Property  ^^ 


TAYLOR  et  al  v.  FIELDS 
(Court  of  Exchequer,  1799     4  Ves   39G.) 

The  point  in  this  cause  depended  upon  the  general  question  wheth- 
er a  separate  creditor  of  one  partner  can  hold  the  partnership  effects 
taken  under  an  execution  for  his  separate  debt  against  the  joint  cred- 
itors of  the  partnership. 

At  the  time  the  execution  took  place  the  partnership  was  insolvent; 
but  a  commission  of  bankruptcy  had  not  then  issued. 

The  court  having  taken  some  time  to  consider,  the  Lord  Chief 
B.-\RON  ^*  delivered  their  opinion- 

The  right  of  the  separate  creditor  under  the  execution  depends  up- 
on the  interest  each  partner  has  in  the  joint  property.     With  respect 

13  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  55. 
»«  Part  of  the  opinion  is  omitted. 


110  NATURE    AND    CHARACTERISTICS 

to  that  we  are  of  opinion  that  the  corpus  of  the  partnership  eflFects  is 
joint  property,  and  neither  partner  separately  has  anything  in  that 
corpus,  but  the  interest  of  each  is  only  his  share  of  what  remains  after 
the  partnership  accounts  are  taken. 

In  Skipp  V.  Harwood,  1  Ves.  239  (sub  nom.  West  v.  Skip),  we 
see  that,  whatever  the  right  of  the  partnership  may  be,  it  is  not  af- 
fected by  what  may  happen  between  the  individual  partners.  There 
is  a  distinction  between  the  rights  of  the  partners  and  the  rights  of 
the  partnership.  As  between  one  partner  and  the  separate  creditors 
of  the  other,  they  cannot  affect  the  joint  stock  any  farther  than  that 
partner  whose  creditors  they  are  could  have  affected  it.  In  Fox  v. 
Hanbury,  Cowp.  445,  Lord  Mansfield  was  led  to  the  consideration 
of  a  point  that  bears  much  upon  this  case ;  and,  adverting  to  the  case 
of  Skipp  v.  Harwood,  he  states  a  passage  of  Lord  Hardwicke's  judg- 
ment from  his  own  note  rather  stronger  than  it  appears  in  the  report: 
"If  a  creditor  of  one  partner  takes  out  execution  against  the  partner- 
ship effects,  he  can  only  have  the  undivided  share  of  his  debtor,  and 
must  take  it  in  the  same  manner  the  debtor  himself  had  it,  and  sub- 
ject to  the  rights  of  the  other  partner." 

What  is  the  manner  in  which  the  debtor  himself  had  it?  He  had 
that  which  was  undivided,  and  could  only  be  divided  by  first  deliver- 
ing the  effects  from  the  partnership  debts.  He  who  comes  in  as  his 
companion,  as  joint-tenant  with  him,  according  to  this  doctrine  of 
Lord  Hardwicke,  must  take  it  in  the  same  manner  the  debtor  himself 
had  it,  subject  to  the  rights  of  the  other  partners. 

Lord  Mansfield  having  stated  what,  according  to  the  course  of  the 
common  law,  as  far  as  it  respects  trade  between  partners,  is  the  rule, 
that  a  creditor  taking  out  execution  against  a  partner  is  directly  in  the 
place  of  the  partner  debtor,  proceeds  to  show  that  by  the  same  rule, 
where  a  partner  becomes  bankrupt,  the  assignees  are  put  in  the  place 
of  the  partner,  in  whose  right  they  come  in,  and  by  no  means,  as  was 
argued  by  Mr.  Plumer,  by  any  rule  arising  out  of  the  bankrupt  laws; 
for  nothing  is  said  in  any  one  of  those  acts  as  to  the  creditors  of  a 
partnership  and  the  separate  creditors  of  one  partner,  but  they  only 
provide  for  the  case  of  mutual  debts  and  accelerating  a  debt  upon  a 
security  payable  at  a  future  day.  But  the  same  common  law,  applied 
in  the  case  where  one  partner  becomes  a  bankrupt,  provides  that  the 
assignee  of  the  bankrupt  shall  be  in  the  same  situation  as  that  in  which 
a  creditor  taking  out  execution  stood  before  those  acts.  This  intro- 
duces all  the  cases  of  bankruptcy,  which  Mr.  Plumer  wished  to  ex- 
clude, as  not  applicable  to  a  case  in  which  there  was  no  bankruptcy ; 
and  this  case  is  to  be  considered  as  if  no  bankruptcy  had  taken  place, 
as  the  execution  was  before  the  bankruptcy.  In  law  there  are  three 
relations:  First,  if  a  person  chooses  for  valuable  consideration  to 
sell  his  interest  in  the  partnership  trade,  for  it  comes  to  that;  or  if 
his  next  of  kin  or  executors  take  it  upon  his  death;  or  if  a  creditor 
takes  it  in  execution,  or  the  assignees  under  a  commission  of  bank- 
ruptcy.   The  mode  makes  no  difference;  but  in  all  those  cases  the  ap- 


partneb's  interest  in  partnership  property  111 

plication  takes  place  of  the  rule  that  the  party  coming  in  the  right  of 
the  partner  comes  into  nothing  more  than  an  interest  in  the  partner- 
ship, which  cannot  be  tangible,  cannot  be  made  available,  or  be  de- 
livered, but  under  an  account  between  the  partnership  and  the  part- 
ner, and  it  is  an  item  in  the  account  that  enough  must  be  left  for  the 
partnership  debts.  *  *  *  The  question,  therefore,  recurs  to  the 
consideration,  what  it  was  that  partner  had,  for  the  creditor  cannot  be 
entitled  to  any  more.  It  therefore  argues  nothing  to  say  he  has  the 
merit  of  diligence,  till  we  see  upon  what  that  merit  can  attach.  If 
the  partner  himself,  therefore,  had  nothing  more  than  an  interest  in 
the  surplus  beyond  the  debts  of  the  partnership  upon  a  division,  if  it 
turns  out  that  at  common  law  that  is  the  whole  that  can  be  delivered 
to,  or  taken  by,  the  assignee  of  a  partner,  the  executor,  the  sheriff,  or 
the  assignee  under  a  commission  of  bankruptcy,  all  that  is  delivered  to 
the  creditor  taking  out  the  execution  is  the  interest  of  the  partner  in 
the  condition  and  state  he  had  it;  and  nothing  was  due  to  this  part- 
ner separately,  the  partnership  being  insolvent.  The  whole  property 
was  due  to  the  partnership  creditors,  and  not  to  either  partner. 


PRATT    V.    IMcGUINNESS    et    al. 
(Supreme  Judicial  Court  of  Massachusetts,  1899.    173  Mass.  170,  53  N.  E.  3S0.) 

Morton,  J."  This  case  was  heard  upon  the  pleadings  and  the  mas- 
ter's report.  There  was  a  final  decree  and  an  appeal,  and  a  request  to 
the  justice  who  heard  the  case  to  report  the  same,  under  St.  1883,  c. 
223,  §  7.  The  case  may  be  treated  as  here  on  appeal,  and  the  report 
may  be  regarded  as  a  finding  under  that  statute  of  all  the  facts  on 
which  the  decree  was  founded,  namely,  those  stated  in  the  master's 
report  and  those  admitted  by  the  pleadings.  It  is  not  necessary,  to 
determine  the  power  of  a  single  justice,  independently  of  the  statute 
of  1883,,  to  report  a  case  to  the  full  court  after  the  entering  of  a  final 
decree.  The  bill,  as  brought,  alleges  that  the  plaintiff  is  a  half  owner 
as  tenant  in  common  of  certain  personal  property,  and  asks  that  the 
property  be  sold,  and  the  proceeds  divided,  that  a  mortgage  put  upon 
the  property  by  one  of  the  defendants  be  declared  void,  and  that  he  be 
required  to  account  for  certain  rents  and  profits  received  from  the 
property.  The  master  has  found  that  the  person  from  whom  the  plain- 
tiff derived  his  title  had  only  an  equitable  interest  in  the  property  as  a 
member  of  a  firm  for  which  the  legal  title  to  it  was  held  by  one  of  the 
defendants  as  a  part  of  the  assets  of  the  partnership.  None  of  the 
plaintiflf's  exceptions  to  the  master's  report  in  regard  to  his  findings  of 
fact  can  be  considered,  because  the  evidence  is  not  reported.  It  appears 
that  at  most  the  plaintiff  has  only  an  equitable  interest  in  such  assets 
of  the  partnership  as  may  remain,  if  any,  after  settlement  of  the  affairs 
of  the  partnership.     He  has  nothing  but  that  which  he  acquired  from 

18  Part  of  the  opinion  is  omitted. 


112  NATURE    AND    CHARACTERISTICS 

one  of  the  partners,  and,  if  the  legal  title  to  the  chattels  had  been  in 
the  firm,  he  would  not  have  acquired  an  ownership  in  the  articles  them- 
selves. The  title  to  personal  property  of  a  partnership  is  not  in  the 
individual  members  of  the  firm,  so  that  they  can  convey  an  undivided 
share  in  any  specific  articles  to  another;  but  it  is  in  the  firm  as  an  en- 
tirety, subject  to  the  equities  of  the  different  members,  and  their  right 
to  have  it  applied  to  the  payments  of  the  debts  of  the  partnership.  San- 
born V.  Royce,  133  Mass.  594;  Pelletier  v.  Couture,  148  Mass.  269, 
19  N.  E.  400,  1  L.  R.  A.  863;Lovejoy  v.  Bowers,  11  N.  H.  404; 
Fourth  Nat.  Bank  v.  Railroad  Co.,  11  Wall.  (U.  S.)  624,  20  L.  Ed. 
82 ;  Menagh  v.  Whitwell,  52  N.  Y.  146,  11  Am.  Rep.  683 ;  Tarbell 
V.  West,  86  N.  Y.  280 ;  Beecher  v.  Stevens,  43  Conn.  587 ;  Sirrine  v. 
Briggs,  31  Mich.  443.  It  is  questionable,  upon  the  authorities,  whether, 
upon  a  conveyance  of  an  interest  in  only  a  part  of  the  partnership  prop- 
erty, a  plaintiff  could  maintain  a  bill  in  equity  for  a  settlement  of  the 
partnership  affairs  and  an  accounting.  Assuming  that  he  could,  this 
bill  was  not  brought  for  that  purpose.  *  *  *  It  is  plain  that  this 
bill  cannot  be  maintained. 
Decree  affirmed. 


VII.  Transfer  of  Partnership  Property  *• 
1.  By  Act  of  thu  Partne;rship 


Ex  parte  RUFFIN. 
(In  Chancery,  before  Lord  Eldon,  Ch.,  ISOl.    6  Ves.  119.) 

In  June,  1797,  Thomas  Cooper,  of  Epsom,  brewer,  took  James  Coop- 
er into  partnership.  That  partnership  was  dissolved  by  articles  dated 
the  3d  of  November,  1798,  under  which  the  buildings,  premises,  stock 
in  trade,  debts,  and  effects  were  assigned  to  James  Cooper  by  Thomas 
Cooper,  who  retired  from  the  trade.  Upon  the  2d  of  April,  1800,  a 
commission  of  bankruptcy  issued  against  James  Cooper,  under  which 
the  joint  creditors  attempted  to  prove  their  debts,  but  the  commission- 
ers refused  to  permit  them,  upon  whifh  a  petition  was  presented  to 
Lord  Rosslyn,  who  made  an  order  that  the  joint  creditors  should  be 
at  liberty  to  prove,  with  the  usual  directions  for  keeping  distinct  ac- 
counts, and  an  application  of  the  joint  estate  to  the  joint  debts  and  of 
the  separate  estate  to  the  separate  debts.  At  a  meeting  for  the  purpose 
of  declaring  a  dividend,  the  commissioners  postponed  the  dividend,  in 
order  to  give  an  opportunity  of  applying  to  the  Lord  Chancellor,  in 

i«  For  a  discussion  of  principles,  see  Gllmore  on  Partnership,  §§  56,  57. 


TEANSFEB   OF  PAETNERSIIIP   PROPERTY  113 

consequence  of  which,  this  petition  was  presented,  praying  that  the 
partnership  effects  remaining  in  specie  and  possessed  by  the  assign- 
ees may  be  sold,  and  that  the  outstanding  debts  may  be  accounted 

joint  estate. 

By  the  articles  of  dissolution  the  parties  covenanted  to  abide  by  a 
valuation  to  be  made  of  the  partnership  property,  and  James  Cooper 
covenanted  to  pay  the  partnership  debts  then  due  and  to  indemnify 
Thomas  Cooper  against  them,  and  Thomas  Cooper  convenanted  not  to 
carry  on  the  trade  of  brewer  for  20  years  within  20  miles  of  Epsom. 
A  bond  for  £3,000,  the  calculated  value  of  the  partnership  property  as- 
signed, was  given  to  Thomas  Cooper  by  James  Cooper  and  his  father, 
as  surety.  In  pursuance  of  the  covenant,  the  partnership  property,  con- 
sisting of  leases,  the  premises  where  the  trade  had  been  carried  on, 
stock,  implements,  outstanding  debts,  and  other  effects,  were  valued 
by  arbitrators  at  £2,030,  after  charging  all  the  partnership  debts  then 
due.  James  Cooper,  by  his  affidavit,  stated  that  all  the  joint  creditors 
knew  of  the  dissolution  and  the  assignment  of  the  property,  that  ad- 
vertisements were  published,  and  the  deponent,  after  the  dissolution, 
received  many  debts  due  to  the  partnership,  but  paid  more  on  account 
of  the  partnership.  His  father,  by  affidavit,  stated  that  he  paid  the 
interest  of  the  bond  regularly,  and  intended  to  pay  the  principal  when 
due. 

Eldon,  L.  C.  This  case  is  admitted,  unless  Ex  parte  Burnaby,  1 
Cooke's  Bank.  Law  (4th  Ed.)  253,  applies  to  it,  to  be  new  in  its  cir- 
cumstances. Therefore,  if  I  was  of  opinion  that  the  petition  could  be 
supported,  I  should  be  very  unwilling  to  express  that  in  bankruptcy, 
where  my  opinion  would  not  be  subject  to  review.  If  the  case  I  have 
mentioned  has  decided  the  point,  there  is  the  authority  of  Lord  Hard- 
wicke  upon  it,  which  would  weigh  down  the  most  considerable  doubt 
that  I  could  be  disposed  to  entertain.  I  feel  great  difficulty  in  comply- 
ing with  the  prayer  of  the  petition,  and,  when  I  read  it,  was  struck 
with  it  as  a  new  case,  and  as  one  upon  which  I  do  not  clearly  see  my 
way  to  the  relief  prayed.  It  is  the  case  of  two  partners  who  owed 
several  joint  debts  and  had  joint  effects.  Under  these  circumstances 
their  creditors,  who  had  a  demand  upon  them  in  respect  of  those  debts, 
ha4  clearly  no  lien  whatsoever  upon  the  partnership  effects.  They 
had  the  power  of  suing,  and  by  process  creating  a  demand  that  would 
directly  attach  upon  the  partnership  effects.  But  they  had  no  lien 
upon  or  interest  in  them  in  point  of  law  or  equity.  If  any  creditor  had 
brought  an  action,  the  action  would  be  joint.  His  execution  might  be 
either  joint  or  several.  He  might  have  taken  in  execution  both  joint 
and  separate  effects.  It  is  true  that  the  separate  creditors  of  each,  by 
bringing  actions,  might  acquire  a  certain  interest  even  in  the  partner- 
ship effects,  taking  them  in  execution  in  the  way  in  which  separate 
creditors  can  effect  such  property.  But  there  was  no  lien  in  either. 
The  partnership  might  dissolve  in  various  ways:  First,  by  death; 
secondly,  by  the  act  of  the  parties,  that  act  extending  to  nothing  more 
Gilm.Fart. — 8 


114  NATURE    AND    CHARACTERISTICS 

than  mere  dissolution,  without  any  special  agreement  as  to  the  dis- 
position of  the  property,  the  satisfaction  of  the  debts,  much  less  any 
agreement  for  an  assignment  from  either  of  the  partners  to  the  others. 
The  partnership  might  also  be  dissolved  by  the  bankruptcy  of  one  or 
both  and  by  effluxion  of  time.  If  it  dissolved  by  death,  referring 
to  the  law  of  merchants  and  the  well-known -doctrine  of  this  court,  the 
death  being  the  act  of  God,  the  legal  title  in  some  respects,  in  all  the 
equitable  title,  would  remain  notwithstanding  the  survivorship ;  and 
the  executor  would  have  a  right  to  insist  that  the  property  should  be 
applied  to  the  partnership  debts.  I  do  not  know  that  the  partnership 
creditors  would  have  that  right,  supposing  both  remained  solvent.  So, 
upon  the  bankruptcy  of  one  of  them,  there  would  be  an  equity  to 
say  the  assignees  stand  in  the  place  of  the  bankrupt,  and  can  take  no 
more  than  he  could,  and,  consequently,  nothing  until  the  partnership 
debts  are  paid.  So,  upon  a  mere  dissolution  without  a  special  agree- 
ment, or  a  dissolution  by  effluxion  of  time,  to  wind  up  the  accounts, 
the  debts  must  be  paid,  and  the  surplus  be  distributed  in  proportion  to 
the  different  interests.  In  all  these  ways  the  equity  is  not  that  of  the 
joint  creditors,  but  that  of  the  partners  with  regard  to  each  other,  that 
operates  to  the  payment  of  the  partnership  debts.  The  joint  creditors 
must  of  necessity  be  paid,  in  order  to  the  administration  of  justice  to 
the  partners  themselves.  When  the  bankruptcy  of  both  takes  place, 
it  puts  an  end  to  the  partnership  certainly.  But  still  it  is  very  possible, 
and  it  often  happens  in  fact,  that  the  partners  may  have  different  in- 
terests in  the  surplus,  and  out  of  that  a  necessity  arises  that  the  part- 
nership debts  must  be  paid ;  otherwise,  the  surplus  cannot  be  distribut- 
ed according  to  equity,  and  no  distinction  has  been  made  with  reference 
to  their  interests,  whether  in  different  proportions  or  equally.  Many 
cases  have  occurred  upon  the  distribution  between  the  separate  and 
joint  estates,  and  the  principle  in  all  of  them,  from  the  great  case  of 
Mr.  Fordyce,  has  been  that,  if  the  court  should  say  that  what  has  ever 
been  joint  or  separate  property  shall  always  remain  so,  the  consequence 
would  be  that  no  partnership  could  ever  arrange  their  affairs.  There- 
fore a  bona  fide  transmutation  of  the  property  is  understood  to  be 
the  act  of  men  acting  fairly,  winding  up  the  concern,  and  binds  the 
creditors ;  and  therefore  the  court  always  let  the  arrangements  be  as 
they  stand,  not  at  the  time  of  the  commission,  but  of  the  act  of  bank- 
ruptcy. 

Thomas  Cooper  is  admitted  to  be  solvent.  He  certainly  has  no  such 
equity  as  if  the  partnership  had  been  dissolved  by  bankruptcy,  death, 
effluxion  of  time,  or  any  other  circumstance  not  his  own  act.  But  he 
dissolves  the  partnership  a  year  and  a  half  ago,  and,  instead  of  calling 
upon  these  effects  according  to  his  equity  at  the  dissolution  to  pay  the 
partnership  debts,  he  assigns  his  interest  to  the  other,  to  deal  as  he 
thinks  fit  with  the  property,  to  act  with  the  world  respecting  it,  desiring 
only  a  bond  to  pay  a  given  value  in  three  or  four  years.  Therefore 
he  or  his  executors  could  not  sue.  If  it  was  necessary  for  the  creditors 
to  operate  their  relief  through  his  equity,  he  has  no  equity.    It  is  then 


TRANSFER  OF  PARTNERSHIP  PROPERTY  11 U 

said,  and  the  circumstance  had  struck  me,  that  all  the  property  is  not 
assignable  at  law — for  instance,  the  debts;  but,  as  between  the  two 
Coopers  they  were  the  property  of  the  bankrupt,  for  debts  are  within 
the  statute  of  King  James,  and,  if  left  in  the  order  and  disposal  of 
the  bankrupt,  he  is  proprietor  of  the  debt.  Therefore  Thomas  Cooper 
could  never  set  up  the  insufficiency  of  the  legal  operation  of  the  assign- 
ment against  his  own  deed.  The  assignment  was  not  made  subject 
to  the  payment  of  the  debts,  but  in  consideration  of  a  covenant,  leav- 
ing no  duty  upon  the  property,  but  attaching  a  personal  obligation  upon 
the  assignee  to  pay  the  debts.  The  creditors,  therefore,  cannot  rest 
upon  the  equity  of  the  partner  going  out.  I  was  struck  with  the  argu- 
ment of  inconvenience.  The  inconvenience  on  all  sides  is  great.  To 
say  this  seems  to  me  a  monstrous  proposition:  That  which,  at  any 
time  during  the  partnership,  has  been  part  of  the  partnership  effects, 
shajl  in  all  future  time  remain  part  of  the  partnership  effects,  notwith- 
standing a  bona  fide  act.  Suppose,  an  inprobable  case,  that  the  partners 
in  Child's  house  chose  to  shift  their  shop  from  Temple  Ear  to  the 
west  end  of  town;  and  that  house,  now  the  property  of  the  partner- 
ship, was  bona  fide  bought  by  one  of  the  partners,  and  the  money  was 
invested  in  the  purchase  of  the  new  house  in  which  they  were  going 
to  reside ;  suppose,  a  still  more  improbable  case,  that  a  year  and  a 
half  or  ten  years  afterwards  they  became  bankrupt — would  that  house 
be  part  of  the  partnership  effects?  It  would  be  so,  if  it  remained  with- 
out legal  interest  being  passed,  or  without  any  equitable  claim,  taking 
it  out  of  the  reach  of  a  legal  execution;  but  where  the  effect  is  a 
bona  fide  transaction  of  this  sort,  if  it  were  held  at  any  time  after- 
wards to  be  partnership  property,  not  for  the  purpose  of  satisfying 
demands  of  the  partners,  or  of  any  creditor  who  cannot  otherwise  be 
satisfied,  but  to  enable  them  to  undo  all  the  intermediate  equities,  com- 
mercial transactions  could  not  go  on  at  all.  It  would  be  much  less  in- 
convenience to  examine  the  bona  fides  of  each  transaction  than  to  say 
such  transactions  shall  never  take  place. 

The  case  of  West  v.  Skip,  1  Ves.  237,  falls  within  some  of  the  ob- 
servations I  have  made.  Heath  v.  Percival,  1  P.  Wms.  682,  does  not 
apply  at  all.  The  bond  in  that  case  was  not  given  up;  and  therefore 
the  creditor  keeping  the  best  security,  and  refusing  to  part  with  it, 
no  inference  can  be  made  against  the  conclusion  arising  from  that. 
Hankey  v.  Garratt,  1  Ves.  236,  is  also  very  different.  There  the  part- 
nership was  dissolved  by  bankruptcy  or  by  death,  and  there  was  no 
actual  transfer  of  the  property  to  take  it  out  of  the  reach  of  legal  ex- 
ecution. I  am  unwilling  to  make  any  observation  upon  Burnaby's  Case. 
I  do  not  know  how  to  understand  it.  Whether  there  was  anything 
special  in  the  assignment,  I  cannot  find  out  from  the  report.  I  shall 
endeavor  to  find  the  papers.  It  looks  very  like  this  case.  If  it  is  in 
specie  this  case,  as  an  authority  I  should  think  myself  bound  to  sub- 
mit to  it.  But,  if  it  is  not  in  specie  this  case,  there  is  so  much  doubt 
whether  this  relief  can  be  given  that  I  am  satisfied  it  ought  to  be  given, 
if  at  all,  in  a  jurisdiction  where  my  opinion  would  be  subject  to  review. 


116  NATURE    AND    CHARACTERISTICS 

My  present  Inclination  is  that  the  creditors  have  not  this  equity.  I 
have  considerable  doubt,  also,  whether,  if  they  have  it,  Thomas  Cooper 
would  be  benefited  by  it;  and  a  further  subject  of  grave  and  serious 
doubt  is,  whether,  if  the  joint  creditors  disturb  the  arrangement,  the 
separate  creditors  would  not  have  a  right  to  set  the  arrangement  right 
at  his  expense. 

I  now  think  there  is  a  circumstance  which  distinguishes  Bumaby's 
Case.  The  assignment  was  not  by  one  to  the  other  two,  but  by  one 
to  one  of  the  other  two,  which  may  be  very  different.  I  think  that 
circumstance  distinguishes  the  case  so  much  that  I  shall  consult  the 
interest  of  the  parties  better  by  saying  they  may  file  a  bill,  if  they 
think  proper,  than  by  further  delay. 

The  petition  was  dismissed. 


VIII.  Firm  Creditors'  Rights  in  Firm  Assets — Partner's  Lien*' 


DARBY  et  al.  v.  GILLIGAN  et  al. 

(Supreme  Court  of  Appeals  of  West  Virginia,  1889.    33  W.  Va.  246,  10  S.  E. 

400,  6  L.  R.  A.  740.) 

Snyder,  P.  Appeal  from  a  decree  of  the  circuit  court  of  Taylor 
county,  pronounced  March  28,  1887,  in  the  suit  of  Darby  &  Co.  and 
others  against  John  J.  Gilligan  and  others.  The  suit  was  brought  to 
set  aside  a  trust  deed  made  by  said  Gilligan  to  John  T.  McGraw,  trus- 
tee; to  enjoin  said  trustee  from  disposing  of  the  property  thus  con- 
veyed to  him;  and  to  have  the  same  applied  to  the  payment  of  the 
plaintiffs'  debts.  On  September  17,  1883,  the  said  Gilligan  and  James 
Burns  entered  into  an  agreement  in  writing,  whereby  they  agreed  to 
form  a  partnership  for  conducting  a  general  merchandising  business  in 
the  town  of  Grafton,  Taylor  county,  Gilligan  having  prior  to  that 
time  been  merchandising  at  the  same  place,  and  having  then  on  hand 
a  stock  of  goods,  which  he  put  into  the  firm  at  the  value  of  $2,000, 
and  Burns  paid  into  the  firm  $1,000.  Upon  this  capital  stock,  they 
agreed  that  Gilligan  should  have  a  two-thirds  and  Burns  a  one-third 
interest  in  the  assets,  business,  and  profits  of  the  partnership.  At  the 
time  this  partnership  was  formed,  Gilligan  was  indebted  to  the  First 
National  Bank  of  Grafton  and  others  in  the  sum  of  $1,100,  for  money 
borrowed  and  put  into  the  mercantile  business  while  he  was  conduct- 
ing it  alone.  During  the  carrying  on  of  the  business  by  the  firm,  the 
firm  contracted  debts  to  the  plaintiffs  and  others,  and  the  partners  so 
managed  the  business  that  they  and  the  firm  became  indebted,  to  in- 
solvency.    Afterwards,  on  February  27,  1885,  by  a  contract  in  writ- 

1'  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  58-61. 


TEANSFEE  OF  PARTNERSHIP  PROPERTY  117 

ing,  the  partnership  was  dissolved,  upon  the  terms  that  in  considera- 
tion of  $1,000,  for  which  Gilligan  executed  to  Burns  his  note,  payable 
one  year  from  that  date.  Burns  withdrew  from  the  firm,  and  Gilligan 
assumed,  and  agreed  to  pay,  all  the  then  existing  indebtedness  of  the 
firm.     About  two  months  after,  on  April  24,  1885,  Gilligan  conveyed 
to  John  T.  McGraw  the  whole  of  the  assets  of  the  late  firm,  in  trust, 
to  secure  all  his  debts,  including  the  debts  due  the  plaintiffs  and  others 
by  said  firm;    but  in  said  conveyance  he  preferred  the  aforesaid  $1,- 
100  due  to  the  Grafton  Bank  and  others,  the  note  for  $1,000  given  to 
Burns  as  aforesaid,  which  had  been  assigned  by  him  to  Anna  Burns, 
and  other  individual  debts,  amounting  in  the  aggregate  to  more  than 
the  value  of  the  assets  conveyed.    Upon  these  facts  the  plaintiffs,  the 
appellants  here,  contend  that  this  attempt  of  Gilligan  to  prefer  and  pay 
his  individual  debts  out  of  the  said  assets  is  a  fraud  upon  the  firm 
creditors,  which,  according  to  well-settled  principles,  a  court  of  equity 
will  not  permit.     Ordinarily  the  partnership  estate  is  liable  for  the 
payment  of  the  firm  debts,  in  preference  to  the  individual  debts  of  the 
partners.     This  is  the  right  of  the  partners  inter  se.     The  creditors 
of  the  partnership  have  no  such  right  of  priority  over  the  creditors 
of  the  partners  individually,  otherwise  than   by   substitution  to   the 
rights  of  the  partners  inter  se.     The  partners  may  release  this  right, 
and,  if  they  do  so  bona  fide,  the  creditors  of  the  partnership  cannot 
complain;    for  it  is  not  their  right,  except  subject  to  the  proper  dis- 
position and  control  of  the  partners  themselves,  to  whom  it  belongs. 
This  right  is  generally  called  the  "partner's  lien."     It  differs  from  a 
common-law  lien  in  that  it  is  not  dependent  on  possession,  and  any 
single  partner  can  convey  a  good  title  to  specific  chattels  by  a  bona 
fide  sale  in  the  course  of  trade ;   and  a  lien  does  not  involve  the  right 
to  deal  with  the  property,  whereas  the  partner's  equity  is  a  right  to 
have  it  applied  for  certain  purposes,  and  the  one  partner  cannot  assert 
the  lien  as  a  sole  plainti'ff.    The  existence  of  this  equity  may  be  ex- 
plained in  a  variety  of  ways,  as  on  an  implied  contract  that  the  as- 
sets shall  not  be  used  for  private  purposes;    on  the  doctrine  of  sure- 
tyship, since  each  partner  is  liable  in  solido  for  the  debts,  and  there- 
fore, inter  se,  virtually  a  surety  for  the  copartners  for  their  propor- 
tions, and  entitled  to  have  the  assets  applied  so  as  to  reheve  him.    The 
partners  have  jointly  the  same  right  of  absolute  disposition  of  their 
joint  property  that  any  individual  has.     They  may  sell  it,  pledge  it, 
convert  it  into  other  forms,  divide  it  up  among  themselves,  devote 
it  to  the  payment  of  all  or  part  of  the  debts,  or  exercise  other  owner- 
ship over  it,  subject  only  to  each  other's  rights,  and  to  the  operation 
of  statutes  forbidding  voluntary  or  fraudulent  conveyances,  to  hinder, 
delay,  and  defraud  creditors.    It  is  clear  from  what  has  preceded  that 
while  the  partnership  is  solvent  and  going  on  the  partners  may,  by 
unanimous  assent  or  joint  act,  do  what  they  please  with  the  assets,  if 
the  act  is  bona  fide.    Where,  in  such  case,  one  partner  sells  or  assigns  his 
interest  to  the  other,  bona  fide,   for  a  valuable  consideration,  or  an 
agreement  to  pay  the  debts  of  the  firm,  and  indemnify  against  them, 


118  NATURE    AND    CHARACTERISTICS 

this  will  change  the  joint  into  a  separate  property.  The  only  question 
is  upon  the  bona  fides  of  the  transaction.  If  such  an  arrangement 
could  not  be  made,  a  partner  never  could  retire.  Bates,  Partn.  §§  559, 
8:20,  824;  Story,  Partn.  §§  97,  3G0.  On  the  other  hand,  according 
to  the  better  reason  and  the  weight  of  authority,  if  the  firm  is  insol- 
vent, or  on  the  eve  of  insolvency,  and  both  of  the  partners  are  insol- 
vent, a  purchase  by  one  partner  of  the  interest  of  the  other,  in  con- 
sideration of  the  former's  assumption  of  all  the  debts  of  the  firm,  will 
be  regarded  as  a  purchase  upon  a  consideration  which  is  of  no  value 
whatever;  and,  no  equivalent  having  been  given,  the  transfer  is  in 
effect  voluntary,  and  its  only  effect,  if  sustained,  would  be  to  hinder 
partnership  creditors,  and  hence  is  deemed  ineffectual  to  convert  the 
joint  property  into  separate  property,  as  against  the  firm  creditors.  Ex 
parte  Mayou,  4  De  Gex,  J.  &  S.  664,  11  Jur.  (N.  S.)  433,  12  Law  T. 
(N.  S.)  254;  Sanderson  v.  Stockdale,  11  Md.  563;  Phelps  v.  Mc- 
Neely,  66  Mo.  554,  27  Am.  Rep.  378;  Tenney  v.  Johnson,  43  N.  H. 
144;  Alarsh  v.  Bennett,  5  McLean  (U.  S.)  117,  Fed.  Cas.  No.  9,110; 
Roop  V.  Herron,  15  Neb.  73,  17  N.  W.  353;  In  re  Cook,  3  Biss.  122, 
Fed.  Cas.  No.  3,150;  Conroy  v.  Woods,  13  Cal.  626,  73  Am.  Dec. 
605;  Ransom  v.  Van  Deventer,  41  Barb.  (N.  Y.)  307;  Menagh  v. 
Whitwell,  52  N.  Y.  146,  163,  11  Am.  Rep.  683;  Shackelford  v.  Shack- 
elford, 32  Grat.  (Va.)  503;  Farmers'  Bank  v.  Smith,  26  W.  Va.  541. 
In  the  case  at  bar  the  firm  as  well  as  the  individual  partners  were 
indebted,  to  insolvency,  at  the  time  the  contract  of  dissolution  was 
made,  by  the  terms  of  which  Gilligan  assumed  to  pay,  not  only  the 
debts  of  the  firm,  but  $1,000  to  Burns.  As  the  firm  and  Gilligan  were 
then  both  insolvent,  there  was  no  valuable  consideration  for  either 
this  assumption  of  the  firm  debts  or  said  $1,000,  Less  than  two 
months  after  this  transaction,  Gilligan,  without  paying  a  single  firm 
debt,  so  far  as  the  record  shows,  assigned  all  the  assets  in  such  a  man- 
ner as  to  devote  the  whole  of  them  to  the  payment  of  his  individual 
debts.  It  seems  to  me  plain  that  to  uphold  this  scheme,  against  the 
rights  of  the  social  creditors,  would  violate,  not  only  the  general 
principles  of  equity,  but  the  express  provisions  of  our  statute  against 
voluntary  and  fraudulent  conveyances.  It  is,  however,  claimed  for 
the  appellees  that  if  this  transaction  is  held  void  as  to  the  firm  cred- 
itors, then,  for  the  like  reasons,  the  act  of  Gilligan  in  putting  his  own 
stock  of  goods  into  the  firm  must  be  held  void  as  to  his  individual 
creditors.  But  there  is  no  analogy  in  the  two  transactions.  It  does 
not  appear  that  either  Burns  or  Gilligan  was  insolvent  at  that  time, 
and  it  does  appear  that  Burns  paid  into  the  concern  $1,000,  and  also 
that  the  debts  due  the  plaintiffs  and  others  were  contracted  by  the  firm 
on  the  faith  of  the  social  assets.  For  these  reasons  the  decree  of  the 
circuit  court  is  reversed,  and  the  cause  remanded. 


TEANSFEB  OF  PAETNEESHIP  PEOPEBTY  119 


JACKSON  BANK  v.  DURFEY  et  al. 

(Supreme  Court  of  Mississippi,  1895.    72  Miss.  971,  18  South.  450,  31  L.  R.  A. 
470,  48  Am.  St.  Rop.  590.) 

Cooper,  C.  J.^^  The  appellant,  a  firm  creditor  of  the  appellees,  Dur- 
fey  &  Ascher,  exhibited  its  bill  in  chancery,  seeking  to  annul  as 
fraudulent  two  certain  deeds  of  trust  whereby  the  firm  assets  were 
incumbered  to  secure  the  individual  debts  of  the  partners.  The  evi- 
dence, fairly  construed,  discloses  these  facts:  Durfey,  one  of  the 
partners,  was  indebted  to  the  defendant  Caldwell  in  the  sum  of  $5,- 
000,  and  Ascher,  the  other  partner,  was  indebted  to  Hart  in  the  sum 
of  $5,550.  The  firm  and  the  individuals  composing  it  were  insolvent. 
On  October  3d,  Durfey  executed  a  deed  of  trust  on  all  property 
owned  by  him  individually  and  upon  his  individual  half  interest  in 
certain  property,  specifically  described,  owned  by  the  firm,  to  secure 
the  debt  due  by  him  to  Caldwell.  On  the  same  day  Ascher  executed 
a  deed  of  trust  conveying  his  individual  property  and  his  individual 
half  interest  in  certain  property  specifically  described  owned  by  the 
firm,  to  secure  the  debt  due  by  him  to  Hart.  The  book  accounts, 
and  certain  horses  which  had  been  bought  for  resale,  were  not  in- 
cluded in  the  conveyance;  but  the  stock  kept  in  livery,  the  carriages, 
feed,  and  other  appurtenances,  were  all  incumbered.  Forfeiture  of 
both  conveyances  was  fixed  for  the  same  debt, — January  1st  follow- 
ing,— at  which  time,  the  secured  debts  remaining  unpaid,  the  trus- 
tees were  authorized  and  directed  to  make  sale  of  the  mortgaged 
property,  and  out  of  its  proceeds  to  pay  the  secured  debts. 

The  members  of  the  firm  testified  that  they  expected,  by  the  col- 
lection of  the  outstanding  book  accounts,  by  the  sale  of  the  stock 
not  included  in  the  deeds,  and  from  the  profits  of  the  business,  to  pay 
the  firm  debts;  but  a  careful  consideration  of  the  evidence  satisfies 
us  that  at  the  time  the  deeds  were  executed  the  firm  and  its  members 
were  hopelessly  insolvent,  and  that  no  expectation  could  reasonably 
have  been  entertained  that  the  firm  debts  could  be  paid  after  the  firm 
property  had  been  devoted  to  the  individual  debts  of  the  partners. 
What  followed  the  execution  of  the  deeds  was  at  best  the  struggle 
of  men  hoping  against  hope,  and  postponing  for  a  short  time  the  in- 
evitable end.  The  issue  is  thus  sharply  presented  whether  it  is  law- 
ful for  the  members  of  an  insolvent  firm  to  convert  the  joint  estate 
to  the  individual  debts  of  its  members,  leaving  the  firm  debts  unpaid. 
The  question  has  never,  so  far  as  we  are  advised,  been  before  the 
court,  though  expressions  may  be  found,  suggestive  of  the  inclination 
of  some  of  the  judges  who  have  been  members  of  the  court,  that 
the  dominion  of  the  partners  over  firm  property  is  not  limited  by  the 
existence  of  firm  debts  and  the  insolvency  of  the  firm.     *     *     * 

18  Part  of  the  opinion  is  omitted. 


120  NATURE    AND    CHARACTERISTICS 

The  authorities,  with  practical  uniformity,  agree  that  the  right  of 
partnership  creditors  to  have  the  partnership  property  applied  to  the 
payment  of  partnership  debts  is  a  derivative  one,  resting  upon  the 
equities  of  the  partners  as  between  each  other.  The  conflict  of  de- 
cision arises  with  the  question  whether  the  partners  may,  by  conven- 
tion, waive  their  rights,  and  convert  the  joint  estate  into  severalty, 
thus  subjecting  it  to  the  debts  of  the  individual  members,  or,  by  di- 
rect appropriation,  apply  the  joint  estate  to  such  debts.  It  is  quite 
generally  held  that  this  may  be  done  so  long  as  the  partnership  is 
solvent,  and  a  going  concern.  Some  courts  seem  to  hold  that  if  the 
partnership,  though  insolvent,  is  yet  engaged  in  the  prosecution  of 
its  business  it  may  thus  deal  with  the  partnership  estate;  and  oth- 
ers that  this  may  be  done  even  though  the  partnership  is  insolvent, 
contemplates  dissolution,  and  converts  the  joint  into  separate  es- 
tates for  the  purpose  of  applying  it  to  the  individual  debts  of  its 
members. 

In  Case  v.  Beauregard,  99  U.  S.  119,  25  L.  Ed.  370,  the  insolvent 
members  of  an  insolvent  firm  had  applied  all  the  partnership  property 
to  the  payment  of  their  respective  individual  debts.  The  firm  cred- 
itors sought  to  subject  it  to  their  demands,  but  relief  was  denied  up- 
on the  ground  that  the  right  of  firm  creditors  was  a  derivative  one, 
and  could  not  be  enforced  except  so  long  as  the  partners  themselves 
retained  their  liens  upon  the  property.  Speaking  on  the  precise  point, 
the  court  said:  "The  bill,  it  is  true,  charges  that  the  several  trans- 
fers of  the  partners  were  illegal  and  fraudulent,  without  specifying 
wherein  the  fraud  consisted.  The  charge  seems  to  be  only  a  legal 
conclusion  from  the  fact  that  some  of  the  transfers  were  made  for 
the  payment  of  the  private  debts  of  the  assignors.  Conceding  such 
to  have  been  the  case,  it  was  a  fraud  upon  the  other  partners,  if  a 
fraud  at  all,  rather  than  upon  the  joint  creditors ;  a  fraud  which  those 
partners  could  waive,  and  which  was  subsequently  waived  by  the  act 
of  fusion." 

The  clear  effect  of  this  decision  is  that  it  is  not  a  fraud  upon  part- 
nership creditors  for  an  insolvent  firm  to  devote  the  joint  estate  to 
the  payment  of  the  separate  debts  of  the  partners,  leaving  no  pro- 
vision for  the  firm  creditors.  In  no  other  case  we  have  seen  has 
the  question  been  presented  where  the  conversion  of  the  whole  as- 
sets into  separate  estates  or  the  devotion  of  all  of  them  to  indi- 
vidual debts  was  involved.  The  reasoning  of  other  courts,  however, 
in  the  following  cases,  would  seem  to  conduct  to  the  same  conclusion 
as  that  reached  in  Case  v.  Beauregard:  Sigler  v.  Bank,  8  Ohio  St. 
511;  Rice  v.  Barnard,  20  Vt.  479,  50  Am.  Dec.  54;  Allen  v.  Center 
Valley  Co.,  21  Conn.  130,  54  Am.  Dec.  333;  Winslow  v.  Wallow, 
116  Ind.  324,  17  N.  E.  923,  1  L.  R.  A.  179;  Purple  v.  Farrington, 
119  Ind.  164,  21  N.  E.  543,  4  L.  R.  A.  535;  Fletcher  v.  Sharpe  (Win- 
slow  V.  Wallace,  116  Ind.  317)  17  N.  E.  923.    See,  also,  other  cases, 


TBANSFER  OF  PAETNERSHIP  PROPERTY  121 

probably  holding  to  the  same  efTcct,  cited  in  notes  to  section  560,  1 
Bates,  Partn. 

But  the  decided  weight  of  authority  is  that,  while  the  right  of  firm 
creditors  to  go  against  the  firm  property  in  postponement  of  the 
right  of  creditors  of  the  individual  members  is  a  derivative  right, 
and  rests  on  the  right  of  the  members  of  the  firm,  and  while  that 
right  is  lost  by  the  bona  fide  waiver  of  their  rights  by  the  partners, 
it  is  not  lawful  for  the  members  of  the  firm,  in  contemplation  of  in- 
solvency, to  divert  the  firm  property,  and  apply  it  to  the  payment 
of  the  debts  of  the  individual  members,  or  to  convert  the  joint  es- 
tate into  estates  in  severalty,  to  prevent  its  being  seized  by  firm  cred- 
itors. Ex  parte  Mayou,  4  De.  Gcx,  J.  &  S.  664;  Ex  parte  Snow- 
ball, 7  App.  Cas.  534;  Cron  v.  Cron's  Estate,  56  Mich.  8,  22  N. 
W.  94;  Cribb  v.  Morse,  77  Wis.  322,  46  N.  W.  126;  Willis  v.  Brem- 
ner,  60  Wis.  622,  19  N.  W.  403 ;  Menagh  v.  Whitwell,  52  N.  Y.  146, 
11  Am.  Rep.  683;  Phelps  v.  McNeely,  66  Mo.  554,  27  Am.  Rep.  378; 
Reyburn  v.  Mitchell,  106  Mo.  365,  16  S.  W.  592,  27  Am.  St.  Rep. 
350;  Roop  v.  Herron,  15  Neb.  73,  17  N.  W.  353;  Arnold  v.  Hager- 
man,  45  N.  J.  Eq.  186,  17  Atl  93,  14  Am.  St.  Rep.  712;  Darby 
V.  Gilligan,  33  W.  Va.  246,  10  S.  E.  400,  6  L.  R.  A.  740;  Shackelford 
V.  Shackelford,  32  Grat.  (Va.)  503;  Bank  v.  Sprague,  21  N.  J.  Eq. 
530;  French  v.  Lovejoy,  12  N.  H.  458;  Flack  v.  Charron,  29  Md. 
311;  Clements  v.  Jessup,  36  N.  J.  Eq.  569;  Elliott  v.  Stevens,  38 
N.  H.  311;  Gallagher's  Appeal,  114  Pa.  353,  7  Atl.  237,  60  Am. 
Rep.  350;  Patterson  v.  Seaton,  70  Iowa,  689.  28  N.  W.  598:  J. 
Pars.  Partn.  §  196;  Bates,  Partn.  §  563;  Jones,  Mortg.  §§  19-23; 
Beach,  Mod.  Eq.  §§  707,  788;  Hare  &  W.  note  to  Silk  v.  Prime,  2 
White  &  T.  Lead.  Cas.  Eq.  pt.  1,  353. 

The  principle  controlling  in  these  cases  is  stated  with  precision  by 
Judge  Dixon,  delivering  the  opinion  of  the  court  in  Arnold  v.  Ha- 
german,  45  N.  J.  Eq.  186,  17  Atl.  93,  14  Am.  St.  Rep.  712.  We 
quote  from  that  opinion  at  large,  as  we  adopt  and  afiirm  the  reason- 
ing of  the  court:  "In  equity,  a  partnership  is  for  some  purposes 
deemed  a  single  entity.  Thus,  when  a  partnership  property  invested 
in  the  business  of  a  partnership  is  to  be  applied  by  a  court  of  equity 
to  the  payment  of  debts,  that  property  is  treated  as  belonging,  not  to 
the  persons  composing  the  firm,  but  to  a  distinct  debtor,  the  part- 
nership, and  it  is  used  first  to  liquidate  the  debts,  and  only  the  sur- 
plus, if  any,  is  surrendered  to  the  individual  partners.  This  equi- 
table practice  rests  upon  the  presumed  intentions  of  the  partners 
themselves,  and  hence  is  primarily  considered  as  their  equitable  right 
against  each  other.  Consequently,  since  the  decision  of  Lord  Eldon 
in  Ex  parte  Ruffin,  6  Ves.  119,  it  has  been  generally  held  that  the 
partners  could  put  an  end  to  their  right,  and  that  if,  by  their  agree- 
ment, the  partnership  is  dissolved,  and  its  property  is  assigned  to 
one  of  their  members  or  to  a  stranger,  as  his  own,  without  reserva- 


122  NATURE    AND    CHARACTERISTICS 

tion  of  the  right,  the  right  to  have  partnership  debts  paid  out  of 
that  property  is  extinct."    "Growing  out  of  this  righ<-  of  partners,  has 
arisen  a  corresponding  equity  in  partnership  creditors  to  have  their 
debts  first  satisfied  out  of  the  firm  property,  which  is  now  deemed  a 
substantial  element  of  their  demands.     Generally,  it  may  be  said  that 
this  equity  ot  creditors  continues  only  so  long  as  the  right  of  the 
partners   against   each   other   subsists,   and   perishes   when   that   ter- 
minates ;    but  this  is  not  universally  true,  for  this  equity  may  survive 
the  right  to  which  it  is  ordinarily  attached.     In  this  respect  it  re- 
sembles the  claim  which  the  general  creditors  of  an  individual  have 
upon  his  prof^rty.     It  is  neither  an  estate  nor  a  Hen.     It  is  ordi- 
narily but  a  right,  by  lawful  procedure,  to  acquire  a  lien  during  the 
ownership  of  the  debtor.     Yet,  under  certain  circumstances,  that  lien 
may  be  acquired  after  the  debtor's  ownership  has  ended.     This  re- 
sults  from   the   provisions    of   the   ancient   statute    for   the   preven- 
tion of   frauds  and   perjuries,   by   force  of   which,   when   a  person 
has  aliened  his  property,  with  intent  to  hinder,  delay,  or  defraud  his 
creditors,  the  rights  of  those  creditors  remain  as  if  no  alienation  had 
taken  place,  except  against  the  claims  of  bona  fide  purchasers,  for 
good  consideration,  without  notice."     "Equity  applies  this  statute  to 
a  partnership,   its  property  and   creditors,   just  as  it  would   in   the 
case  of  an  individual ;    and  therefore,  while  it  is  generally  true  that 
a  partnership  may  defeat  the  equity  of  its  creditors  by  the  alienation 
of  its  property,  and  subsequent  extinguishment  of  the  right  of  its 
partners  inter  sese,  yet,  if  the  alienation  be  effected  with  intent  to 
hinder,  delay,  or  defraud  the  firm  creditors  by  defeating  their  equity, 
the  claims  of  creditors  will  be  unimpaired,  and  the  property  will  be 
treated   as  partnership   assets,   unless  it   shall   have  passed  into  the 
hands  of  those  whom  the  statute  protects."     In  Clements  v.  Jessup, 
36  N.  J.  Eq.  569,  it  was  said :    "Partnership  creditors,  in  equity,  have 
an  inherent  priority  of  claim  upon  partnership  property  over  indi- 
vidual creditors,  and  a  transfer  of  partnership  property  by  one  part- 
ner, with  the  consent  of  the  other  partners,  or  by  all  of  the  part- 
ners, to  pay  individual  debts,  is  fraudulent  and  void  as  to  firm  cred- 
itors, unless  the  firm  was  then  solvent,  and  had  sufficient  property 
remaining  to  pay  the  partnership  debts." 

The  recognition  of  this  equity  in  favor  of  firm  creditors  does  not 
impair  any  proper  exercise  of  the  power  of  the  partnership  over  its 
property  or  aft'airs,  nor  bring  within  the  control  of  a  court  of  equity 
all  partnerships  which  are  insolvent  in  fact,  or  in  a  condition  of  tem- 
porary inability  to  meet  their  obligations.  The  apprehension  of  this 
result  seems  to  have  been  influential  in  leading  the  court,  in  Sigler  v. 
Bank,  8  Ohio  St.  511,  to  adopt  the  opposing  view.  But  the  statute 
against  fraudulent  conveyances  does  not  operate  to  control  the  law- 
ful dominion  of  individuals,  though  insolvent,  over  their  property; 
nor   does   mere  insolvency   confer   jurisdiction   upon   equity  to  take 


TEANSFER  OF  PAETNERSHIP  PBOPERTT  123 

charge  of  and  administer  their  estates.  And  yet  it  cannot  be  denied 
that  the  statute  docs  restrain  the  insolvent  from  disposing  of  his  es- 
tate for  the  purpose  of  withdrawing  it  from  liability  to  his  creditors. 
Why  should  a  different  rule  be  applied  to  an  aggregation  of  individ- 
uals than  to  them  separately?  The  inquiry  must  in  either  case  be 
whetiier  the  purpose  and  effect  of  the  act  is  lawful,  and  it  may  be 
done  by  the  individual  or  by  a  firm;  if  unlawful,  the  act  is  equally 
void,  as  to  the  creditors  injured,  whether  it  be  done  by  the  one  or 
the  other. 

But,  it  is  again  said  that  it  cannot  be  a  fraud  for  one  to  devote 
whatever  right  or  property  he  has  to  the  payment  of  an  honest  debt. 
This  is  true  if  one  devotes  his  own  property  to  his  own  debts;  but 
is  it  not  a  fraud  in  law  if  A.  appropriates  his  property  to  pay  B.'s 
debt,  leaving  his  own  unpaid?  Take  the  case  at  bar.  Durfey  & 
Ascher  appropriated  one-half  of  their  joint  estate  to  pay  Ascher's 
debt.  Now,  if  this  was  all  that  had  been  done,  it  would  be  manifest 
that  the  creditors  of  Durfey  could  treat  the  conveyance  as  fraudu- 
lent, because  it  w^ould  have  been  a  clear  donation  by  Durfey  to  the 
creditors  of  Ascher,  at  the  expense  of  his  creditors,  he  being  in- 
solvent. But  it  is  said  that  Ascher  at  the  same  time  conveyed  his  in- 
terest in  the  other  half  of  the  joint  estate  to  the  creditors  of  Durfey, 
and  so  each  conveyance  became  a  consideration  of  the  other,  and  each 
partner  received  a  full  consideration  for  his  release  of  his  right  as 
a  partner.  The  reply  is  that  a  full  consideration  does  not  make  a  con- 
tract otherwise  unlawful  valid.  If  A.  agrees  to  do  one  unlawful  act 
if  B.  will  do  another,  of  what  avail  is  it  that  each  will  reap  a  benefit 
from  such  an  act  of  the  other?  Durfey  had  a  right  to  have  the 
partnership  property  applied  to  the  partnership  debts,  and  Ascher 
had  a  like  right.  While  these  reciprocal  rights  existed,  they  were  of 
value  as  property  rights  of  the  debtors  to  a  certain  class  of  creditors ; 
i.  e.  firm  creditors.  Now,  it  is  manifest  that  for  the  very  satisfaction 
of  their  demands  the  rights  themselves  were  waived,  and  attempted 
to  be  obliterated.  We  are  unable  to  perceive  any  just  principle  up- 
on which  the  right  of  a  debtor  can  be  recognized  to  thus  deal  with 
his  estate  for  the  very  purpose  of  obstructing  his  creditors. 

It  is  to  be  noted,  also,  that  neither  partner  could  make  a  cent  by  the 
transaction.  Five  thousand  dollars'  worth  of  property  will  pav  only 
$5,000  of  debts,  whether  its  proceeds  be  applied  to  partnership  or 
individual  liabilities.  The  partners  would,  in  either  event,  after  the 
payment  of  debts  of  either  class,  owe  precisely  the  same  sums.  To 
permit  the  consummation  of  the  scheme  would  be  of  no  benefit  to 
them.  Its  sole  effect  would  be  to  withdraw  the  property  from  one 
class  of  creditors  who  had  created  the  joint  estate,  had  given  credit 
on  the  faith  of  it,  and  had  a  right  to  resort  to  it,  and  to  permit  its 
appropriation  to  another  class,  who  dealt  with  the  individuals  com- 
posing the  firm,  with  a  full  knowledge  that  all  they  could  get  out  of 


124  NATURE    AND    CHARACTERISTICS 

the   partnership   assets    was    what    remained    after   payment   of    the 
debts. 

The  complainant  is  entitled  to  the  relief  prayed  by  its  bill.    The  de- 
cree is  reversed,  and  cause  remanded. 


WIGGINS  V.  BLACKSHEAR  et  al. 
(Supreme  Court  of  Texas,  1S94.    86  Tex.  6G5,  26  S.  W.  939.) 

Stayton,  C.  J.  This  is  an  action  by  W.  N.  Wiggins  against  the 
persons  composing  the  firm  of  Blackshear  &  Co.,  and  P.  C.  Baird, 
sheriff,  to  recover  the  value  of  property  seized  by  the  latter  under 
attachment  sued  out  by  Blackshear  &  Co.  in  an  action  brought  by 
them  against  J.  T.  Wiggins  &  Co.,  a  firm  composed  of  J.  T.  Wiggins 
and  S.  J.  Redman. 

J.  T.  Wiggins  &  Co.  owned  a 'Stock  of  drugs,  paints,  oils,  etc.,  of 
the  value  of  $1,310,  besides  accounts  and  claims  amounting  to 
$800.  J.  T.  Wiggins  was  indebted  to  W.  N.  Wiggins  in  the  sum 
of  $445,  exclusive  of  some  interest,  and  S.  J.  Redman  was  indebted 
to  F.  W.  Henderson  in  the  sum  of  $594.  These  were  not  partnership 
debts,  but  the  money  for  which  they  were  contracted  seems  to  have 
been  used  in  the  partnership  business.  The  firm  was  indebted  in  the 
sum  of  $871.63,  of  which  $292.71  was  due  to  Blackshear  &  Co.  On 
December  24,  1889,  Wiggins  &  Co.  were  unable  to  raise  money  to 
meet  their  maturing  indebtedness,  and  in  that  sense  the  firm  was  in- 
solvent, but  it  does  not  appear  what  property  the  members  of  the  firm 
owned  at  that  time.  On  that  day  they  conveyed  to  W.  N.  Wiggins, 
in  trust,  all  of  the  partnership  property,  with  power  to  sell  it,  collect 
the  debts,  and,  after  paying  the  expenses,  to  pay  (1)  the  sums  due 
from  J.  T.  Wiggins  to  W.  N.  Wiggins,  and  the  sum  due  from  Red- 
man to  Henderson;  (2)  the  sums  due  to  partnership  creditors  in 
full  or  pro  rata,  without  preferences  between  them, — any  property 
remaining  after  these  things  were  done  to  be  returned  to  J.  T.  Wig- 
gins &  Co. 

Before  the  trust  deed  was  executed,  and  with  view  to  make  them 
partnership  creditors,  the  notes  due  from  J.  T.  Wiggins  to  W.  N. 
Wiggins,  and  from  S.  J.  Redman  to  Henderson  were  indorsed  by 
the  firm  of  J.  T.  Wiggins  &  Co.,  with  knowledge  of  their  creditors. 
W.  N.  Wiggins  took  possession  of  the  property  at  once,  in  accordance 
with  the  trust  deed,  whereupon  Blackshear  &  Co.  brought  suit  for 
the  sums  due  them,  and  seized  the  property  under  attachment,  and  it 
was  afterwards  sold  as  perishable  property.  That  seizure  was  the 
basis  of  this  action,  and  the  question  arises  whether  Wiggins  &  Co. 
could  thus,  by  way  of  mortgage,  appropriate  their  partnership  prop- 
erty to  payment  of  individual  debts  of  members  of  the  firm. 

In  the  decision  of  this  question,  the  fact  that  the  money  borrowed 


TEANSFEE  OF  PAETNERSHIP  PBOPERTT  125 

by  the  persons  composing  the  firm,  for  which  they  were  only  several- 
ly liable,  may  have  been  used  in  the  purchase  of  property  that  became 
the  property  of  the  firm,  may  and  will  be  considered  only  in  so  far  as 
it  shows  that  the  mortgage  given  to  secure  sums  so  borrowed  and 
used  was  made  without  fraudulent  intent.  That  the  individual  debts 
so  secured  were  real,  and  the  money  obtained  through  their  creation 
used  in  the  purchase  of  property  which  became  partnership  prop- 
erty, takes  from  the  case  all  question  of  fraud,  and  leaves  the  sim- 
ple question  whether  the  members  of  a  partnership,  circumstanced  as 
was  the  firm  of  Wiggins  &  Co.,  may  lawfully  mortgage  partnership 
property  to  secure  debts  of  the  several  members  of  the  firm,  for 
which  the  partnership  is  not  liable. 

There  are  two  theories  on  which  it  is  sometimes  claimed  that  cred- 
itors of  a  partnership  have  right  to  have  its  assets  applied  to  the 
payment  of  their  claims  in  preference  to  creditors  of  the  persons 
composing  the  firm.  The  first  of  these  is  that  the  partnership  prop- 
erty is  presumed  to  have  been  obtained  through  credits  given  to  the 
firm,  and  that,  for  this  reason,  partnership  creditors  ought  to  be  pre- 
ferred in  the  distribution  of  its  assets.  But,  if  courts  could  enter 
into  such  inquiries,  the  facts  of  this  case  would  defeat  the  right  to 
preference  on  such  a  ground,  for  the  partnership  property  in  ques- 
tion was  doubtless  largely  acquired  with  money  borrowed  by  the  sev- 
eral persons  composing  the  firm  from  W.  N.  Wiggins  and  F.  W. 
Henderson,  to  whom  preference  was  given  in  the  mortgage.  The 
other  theory  is  that  a  partnership  ought  to  be  treated  as  a  person,  in 
contradistinction  to  the  persons  composing  it,  and  therefore  its  prop- 
erty ought  to  be  first  subject  to  the  payment  of  partnership  debts, 
without  reference  to  the  will  of  the  partners ;  but  a  partnership  can- 
not be  so  considered,  simply  because  such  is  not  its  nature. 

For  partnership  debts  the  members  of  the  firm  are  jointly  and  sev- 
erally liable,  and  the  law  recognizes  no  personality  in  a  partnership 
otl'.cr  than  that  of  the  persons  who  compose  it.  As  every  partner  is 
liable  for  the  debts  of  his  firm,  and  owns  its  property  in  common  with 
other  partners,  it  is  his  right  to  have  the  common  property  applied 
to  the  payment  of  partnership  debts,  and  all  the  other  partners,  with- 
out his  consent,  cannot  take  this  right  from  him.  This  right  is 
sometimes  said  to  give  every  partner  an  equitable  lien  on  firm  as- 
sets, as  well  to  secure  him  against  several  liability  for  firm  debts  as  to 
secure  to  liim  his  proper  share  of  the  firm  assets  on  dissolution ; 
but  creditors  of  a  partnership  have  no  lien  or  other  claim  on  partner- 
ship assets  which  can  prevent  the  members  of  the  firm  from  dispos- 
ing of  those  in  any  manner  or  to  whomsoever  they  may  deem  proper, 
provided  that  such  disposition  is  not  fraudulent.  That  a  partner- 
ship creditor  has  no  specific  lien,  either  legal  or  equitable,  upon  part- 
nership assets,  any  more  than  any  individual  creditor  has  upon  the 
estate  of  his  debtor,  is  so  firmly  established  that  citation  of  author- 
ity in  support  of  the  proposition  is  useless;    but  they  may  acquire 


126  NATURE    AND    CHARACTERISTICS 

liens  by  contract,  or  through  the  process  of  a  court  by  which  the 
creditors  may  acquire  liens  on  specific  property. 

The  rule  is  thus  well  stated :  "A  creditor  of  a  partnership  has,  as 
a  general  rule,  no  direct  lien  upon  the  partnership  property  until  he 
acquires  it  by  legal  process,  that  is,  by  the  levy  of  an  attachment  or 
of  an  execution.  His  indirect  or  quasi  lien  is  derived  from  the  lien 
or  equity  of  the  individual  partners.  It  is  practically  a  subroga- 
tion to  the  lien  of  the  individual  partners.  If  the  partners  are  not 
themselves  in  a  condition  to  enforce  an  equitable  lien  upon  the  part- 
nership property,  the  creditors  of  the  partnership  cannot  enforce  a 
lien  derived  from  them  or  from  one  of  them.  The  equity  of  the 
partnership  creditor  continues  so  long  as  the  equity  of  the  individual 
partner  continues,  and  no  longer."  Jones,  Liens,  788.  When,  how- 
ever, the  property  of  a  partnership  passes  into  the  custody  of  a  court 
for  administration,  as  in  cases  of  bankruptcy  or  assignment  made  by 
an  insolvent  firm,  then  the  court  will  administer  it  as  was  the  right 
of  the  several  partners  to  have  it  administered  while  controlled  by 
themselves.  In  such  cases,  the  court's  action  is  based  as  fully  up- 
on the  rights  of  the  partners  as  between  themselves  as  upon  the  rights 
of  creditors ;  and,  when  the  result  of  the  proceeding  is  to  discharge 
partners  from  further  liability,  then  the  first  theory  before  refer- 
red to  may  have  been  given  weight  in  establishing  an  administra- 
tive rule  in  such  cases. 

In  accordance  with  the  general  rule  before  stated,  it  has  been 
steadily  held  that  one  partner  may  in  good  faith  convey  his  interest 
in  partnership  assets  to  another,  and  that  thereby  all  equities  of  such 
partner  and  of  all  partnership  creditors  to  subject  such  assets  first 
to  the  payment  of  their  claims  is  thereby  lost.  White  v.  Parrish,  20 
Tex.  689,  73  Am.  Dec.  204;  Rogers  v.  Nichols,  Id.  719;  Weaver 
V.  Ashcroft,  50  Tex.  442;  Swearingen  v.  Bassett,  65  Tex.  272; 
Stansell  v.  Fleming,  81  Tex.  298,  16  S.  W.  1033.  It  has  been  held 
that  one  member  of  an  insolvent  partnership,  all  the  members  being 
insolvent,  may  transfer  in  good  faith,  with  the  concurrence  of  the 
other  partners,  his  interest  in  the  partnership  property  to  an  individ- 
ual creditor,  and  that,  after  this,  a  simple  contract  creditor  cannot 
maintain  a  bill  to  subject  the  property  to  payment  of  a  debt  due  to 
him  by  the  firm.     Case  v.  Beauregard,  99  U.  S.  119,  25  L.  Ed.  370. 

As  priority  of  right  of  partnership  creditors  over  creditors  of  the 
individual  members  of  the  firm  rests  on  the  rights  of  the  partners 
themselves,  can  there  be  any  doubt,  if  an  insolvent  partnership  be 
dissolved  by  mutual  agreement  of  its  members,  and  its  property  be 
divided  between  them  in  accordance  with  their  several  interests,  that 
partnership  creditors  would  lose  all  right  to  priority  of  payment 
out  of  property  so  distributed?  Members  of  a  partnership  having 
thus  voluntarily  surrendered  their  rights  so  as  to  have  the  assets 
appropriated,  each  would  hold  property  received  in  distribution   in 


TRANSFER  OF  PARTNERSHIP  PROPERTY  127 

his  separate  right,  subject  alike,  however,  to  the  claims  of  all  cred- 
itors, both  individual  and  partnership.  Such  a  transaction  would  not 
be  fraudulent  as  to  either  class  of  creditors,  unless  some  further 
fact  intervene,  for  the  property  in  the  hands  of  each  partner  would 
be  subject  as  before  to  the  claims  of  partnership  creditors  as  well 
as  others. 

In  the  case  before  us,  the  inference  is  that  the  members  of  the 
firm  of  Wiggins  &  Co.  owned  equal  shares  in  the  partnership  prop- 
erty;  and  if  they  had  conveyed  or  mortgaged  the  entire  property  to 
pay  or  secure  the  debt  of  one  of  the  partners,  for  which  neither  the 
firm  nor  the  other  partner  was  liable,  then,  on  the  plainest  principles 
of  right,  it  ought  to  be  held  that  such  a  conveyance  or  mortgage  was 
fraudulent  as  to  firm  creditors,  and  as  to  creditors  of  the  member 
of  the  firm  not  bound  for  the  debt,  for,  to  the  extent  of  his  interest 
in  the  property,  the  conveyance  would  be  voluntary. 

Such,  however,  is  not  the  case  we  have  before  us.  The  value  of 
the  firm  assets,  exclusive  of  accounts  and  claims,  which  amounted  to 
$800,  was  shown  to  be  $1,310,  and  one-half  of  this  was  more  than 
the  individual  indebtedness  of  either  partner  secured  by  the  mort- 
gage. As  partnership  creditors  had  no  lien  on  firm  property,  no  rea- 
son is  perceived  why  each  member  might  not  lawfully  permit  the 
other  to  pay  his  individual  debt  out  of  his  own  share  of  the  partner- 
ship property;  and  the  same  reasons  which  would  make  lawful  such 
a  payment  would  give  validity  to  a  mortgage  given  by  both  part- 
ners to  secure  debts  of  members  of  the  firm. 

Conveyances  or  mortgages  given  under  such  circumstances  and 
for  such  purposes  are  not  voluntary  and  therefore  fraudulent  as  to 
partnership  creditors.  If  the  sums  each  partner  owed  individually 
had  been  equal,  no  one  would  doubt  their  perfect  right,  under  agree- 
ment between  themselves  to  pay  or  secure  their  several  debts  with 
partnership  assets,  for  this  would  be  simply  using  by  each  one  what 
belonged  to  him  for  a  lawful  purpose.  That  their  several  debts  were 
not  exactly  equal  is  a  matter  of  no  importance  in  view  of  the  fact 
that  the  share  of  each  in  firm  assets  exceeded  in  value  the  individual 
debt  of  each  secured  by  the  mortgage. 

The  rule  applicable  to  partnership  property  and  creditors  when  in 
the  hands  of  a  surviving  partner,  or  when  in  course  of  administra- 
tion in  bankruptcy,  or  under  assignment  for  benefit  of  creditors,  was 
applied  in  the  district  court  and  in  the  court  of  civil  appeals,  but  it  is 
believed  to  be  inapplicable  in  cases  like  this,  in  which  although  the 
firm  be  insolvent,  partners  by  mutual  agreement  may,  within  the  limit 
heretofore  noticed,  prefer  individual  creditors,  if  this  be  done  in  good 
faith. 

This  cause  was  tried  without  a  jury,  and,  under  the  findings  of  the 
court  of  civil  appeals,  judgment  will  be  here  rendered  in  favor  of 
the  plaintiff  against  all  defendants  for  the  sum  of  $1,310,  with  in- 


128  NATURE   AND    CHARACTERISTICS 

terest  thereon  from  January  2,  1890,  at  rate  of  8  per  cent,  per  an- 
num, together  with  all  costs  incurred  in  this  litigation.  It  is  so  or- 
dered. 


IX.  Transfer  by  Act  of  a  Single  Partner  *• 


LAMBERT'S  CASE. 

(Court  of  Common  Pleas,  1614.     Godb.  244.) 

Two  men  were  partners  in  goods :  the  one  of  the  partners  sold  unto 
J.  S.,  at  several  times,  goods  to  the  value  of  ilOO,  and  for  the  goods 
at  one  time  bought  he  paid  the  money  according  to  the  time;  after- 
wards an  action  was  brought  by  one  of  the  partners  for  the  rest  of 
the  money,  and  the  plaintiff  declared  upon  one  contract  for  the  whole 
goods,  whereas  in  truth  they  were  sold  upon  several  contracts  made, 
and  the  defendant  in  that  case  would  have  waged  his  law.  But  the 
court  advised  the  plaintiff  to  be  nonsuit,  and  to  bring  a  new  action, 
because  that  action  was  not  well  brought,  for  it  ought  to  have  been  a 
several  action  upon  the  several  contract.  And  in  this  case  it  was 
agreed  by  the  court,  that  the  sale  of  one  partner  is  the  sale  of  them 
both;  and  therefore  although  that  one  of  them  selleth  the  goods  or 
merchandiseth  with  them,  yet  the  action  must  be  brought  in  both  their 
names ;  and  in  such  case  the  defendant  shall  not  be  received  to  wage 
his  law,  that  the  other  partner  did  not  sell  the  goods  unto  him,  as  is 
supposed  in  the  declaration. 


TAPLEY  v.  BUTTERFIELD. 

(Supreme  Judicial  Court  of  Massachusetts,  1840.     1  Mete.  515,  35  Am.  Dec. 

374.) 

Plaintiff  claimed  title  to  the  goods  under  a  mortgage.  Defendant 
justified  his  taking  of  the  goods  under  a  writ  of  attachment  in  a  suit 
by  firm  creditors  against  the  firm  of  A.  &  W.  A.  Blaisdell.  The  mort- 
gage covered  the  whole  stock  of  that  firm,  and  was  executed  in  the 
names  of  both  partners  by  A.  Blaisdell,  with  one  seal  attached.  It 
was  given  in  payment  of  a  firm  debt  of  $650  due  to  plaintiff.  On  the 
trial,  W.  A.  Blaisdell  testified  that  if  he  had  been  present  he  should 
not  have  executed  the  mortgage.  Verdict  for  plaintiff  subject  to  the 
opinion  of  the  full  court. 

Shaw,  C.  J.^"  *  *  ♦  ^/e  are  not  aware  that  a  mortgage  of 
personal  property  requires  a  deed.    If  an  act  be  done,  which  one  part- 

19  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  62. 

2  0  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  abridged. 


TBANSFEE   BY   ACT   OF   A   SINGLE    PAETNEB  129 

ner  may  do  without  deed,  it  is  not  the  less  effectual  that  it  is  done  by 
deed.  *  *  *  Then  trcatinf^  this  as  an  efficient  act  of  one  partner 
in  giving  a  mortgage  upon  the  partnership  property  for  the  security 
of  a  partnership  debt,  is  it  sufficient  to  bind  the  property? 

It  is  within  the  scope  of  partnership  authority  for  one  partner  to 
sell  and  dispose  of  all  the  partnership  goods,  in  the  orderly  and  regu- 
lar course  of  business.  It  is  also  within  the  scope  of  partnership  au- 
thority to  pay  the  debts  of  the  firm,  and  to  apply  the  assets  of  the  firm 
for  that  purpose.  He,  being  authorized  to  sell  the  goods  to  raise 
money  to  pay  their  debts,  may  apply  the  goods  directly  to  the  payment 
of  the  debts ;  and,  according  to  the  exigencies  of  the  occasion,  he 
may  pledge  the  partnership  goods  to  raise  money  to  pay  the  debts  of 
the  firm.  To  this  extent  we  think  each  partner  has  a  disposing  power 
over  the  partnership  stock,  arising  necessarily  from  the  nature  of  that 
relation.  If  it  were  in  the  form  of  a  consignment  to  a  commission 
merchant,  or  an  auctioneer,  and  an  advance  of  money  obtained  for 
the  use  of  the  firm,  we  think  there  could  be  no  question  but  that  it 
would  be  within  the  scope  of  partnership  authority.  And  now  that 
the  law  has  given  encouragement  to  mortgages  of  personal  property, 
which  is  only  another  mode  of  pledging  goods,  and  has  substituted 
an  instrument  in  writing  capable  of  being  recorded  in  the  town  clerk's 
book,  and  has  given  to  such  record  an  effect  equivalent  to  the  actual 
delivery  of  the  goods,  Bullock  v.  Williams,  16  Pick.  33,  we  cannot 
perceive  why  it  may  not  be  resorted  to  by  partners  as  well  as  individ- 
ual persons.  To  what  extent  one  partner  can  bind  another  in  the  dis- 
position of  the  entire  property  of  the  concern,  is  a  question  of  power, 
arising  out  of  the  relation  of  partnership,  and  does  not,  we  think,  de- 
pend upon  the  form  or  manner  in  which  it  is  exercised.  Lands  held 
by  partners  are  considered  as  lands  held  by  tenants  in  common ;  and 
as  one  tenant  in  common  cannot  pass  any  estate  of  his  cotenant,  and 
as  land  cannot  pass  without  deed,  it  follows  that  one  partner  cannot 
convey  away  the  real  estate  of  the  firm  without  special  authority. 

But  considering  that  the  authority  of  selling  and  pledging  the  per- 
sonal property  is  within  the  scope  of  partnership  power,  and  may  be 
done  by  either  partner,  and  considering  that  it  may  be  done  without 
deed,  the  court  are  of  the  opinion  that  such  a  mortgage,  made  by  one 
partner  in  the  absence  of  the  other,  although  unnecessarily  made  by 
deed,  was  binding  upon  the  property,  and  constituted  a  valid  lien  upon 
the  property,  which  the  plaintiff  may  avail  himself  of.  Anderson  v. 
Tompkins,  1  Brock.  456,  Fed.  Cas.  No.  365 ;  Deckard  v.  Case,  5 
Watts  (Pa.)  22,  30  Am.  Dec.  287.     *     *     ♦ 

Judgment  on  the  verdict. 
Gii-m.Pabt. — 9 


130  NATURE    AND    CHARACTERISTICS 


JANNEY  V.  SPRINGER  et  al. 

(Supreme  Court  of  Iowa,  1SS9.     78  Iowa,  617,  43  N.  W.  4G1,  16  Am.  St.  Rep. 

460.) 

This  is  an  action  at  law  to  recover  upon  an  account  for  ground  feed 
sold  to  the  defendants.  There  was  a  trial  by  jury,  and  a  verdict  and 
judgment  for  the  plaintiff.    Defendants  appeal. 

RoTHROCK,  J.  It  appears  from  the  evidence  that  at  the  time  the  ac- 
count accrued  A.  A.  Paine  &  Co.,  a  partnership,  were  the  keepers  of 
a  feed  store,  and  that  the  individual  members  of  the  partnership  were 
A.  A,  Paine  and  J.  M.  Janney,  plaintiff  in  this  action.  W.  W.  Springer 
and  C.  F.  Willard  were  at  the  same  time  engaged  in  the  business  of 
importing  and  selling  high-bred  horses  from  France  under  the  part- 
nership style  of  Springer  &  Willard.  A.  A.  Paine  &  Co.  furnished  the 
ground  feed  the  value  of  which  is  in  controversy  in  this  action,  which 
feed  was  consumed  by  the  said  horses.  Some  time  after  the  account 
accrued  the  firm  of  A.  A.  Paine  &  Co.  was  dissolved,  and  at  the  dis- 
solution of  the  firm  the  ground  feed  account  was  assigned  to  Janney 
in  the  settlement  of  the  partnership.  He  brought  this  action  against 
the  firm  of  Springer  &  Willard,  and  against  Springer  as  an  individual 
member  of  the  firm.  The  defendants  claimed  that  Willard  bought  the 
feed  of  A.  A.  Paine,  and  paid  him  therefor.  The  real  facts  relied 
upon  as  a  defense  were  that  A.  A.  Paine  was  indebted  to  Willard  up- 
on a  promissory  note,  and  that  Willard  bought  the  feed  of  Paine  un- 
der the  agreement  that  the  price  of  the  same  was  to  be  applied  on  the 
note  and  in  payment  thereof.  After  both  parties  had  introduced  their 
evidence  the  plaintiff  filed  a  motion  for  an  order  directing  the  jury 
to  return  a  verdict  for  the  plaintiff.  The  motion  was  sustained  upon 
the  ground  that  an  agreement  between  Willard  and  Paine  that  Willard 
should  purchase  the  feed  and  pay  for  the  same  by  the  discharge  of 
Paine's  individual  indebtedness  was  void  as  to  Janney,  the  other  mem- 
ber of  Paine  &  Co.,  unless  Janney  in  some  way  assented  to  or  ratified 
the  transaction.  We  do  not  understand  that  this  proposition  is  con- 
troverted by  counsel  for  appellants.  But  it  is  contended  in  behalf  of 
appellants  that  the  question  as  to  whether  there  was  such  a  partnership 
as  A.  A.  Paine  &  Co.  should  have  been  submitted  to  the  jury.  We 
do  not  think  this  position  can  be  sustained.  The  existence  of  the  firm 
was  shown  by  the  testimony  of  these  witnesses,  and  there  was  no  evi- 
dence to  the  contrary.  It  is  said  there  was  no  firm  sign  erected  at  the 
place  of  business  of  the  partnership,  and  that  defendants  had  no  knowl- 
edge of  the  existence  of  the  firm.  This  want  of  knowledge  and  omis- 
sion to  use  a  sign  was  in  no  sense  conflicting  evidence  upon  the  ques- 
tion of  a  partnership  in  fact.  It  having  been  established  beyond  ques- 
tion that  the  feed  was  partnership  property,  it  was  incumbent  on  the 
defendants  to  show  that  Janney  in  some  way  assented  to  the  alleged 
agreement  to  pay  the  individual  debt  of  Paine  in  partnership  prop- 
erty, or  that  he  (Janney)  in  some  way  ratified  the  act  after  it  was  done. 


TEANSFEB   BT    ACT   OF   A   SINGLE   PARTNEB  131 

Thomas  v.  Stetson,  62  Iowa,  537,  17  N.  W.  751,  49  Am.  Rep.  118. 
There  was  no  evidence  of  such  assent  or  ratification. 

The  only  other  question  necessary  to  be  noticed  in  the  case  is  the 
claim  of  counsel  for  appellants  that,  as  they  had  no  knowledge  that 
Janney  was  in  partnership  with  Paine,  they  had  the  right  to  deal  with 
Paine  as  though  he  were  the  sole  owner  of  the  feed.  It  may  be  this 
position  would  be  sound  if  there  were  any  evidence  that  Janney  was 
a  dormant  or  silent  partner.  But  there  is  no  such  evidence.  The 
partnership  existed  for  some  three  years.  Janney  was  personally  and 
publicly  engaged  in  the  business,  and  his  daughter  was  bookkeeper 
of  the  partnership.  There  was  no  evidence  of  any  act  of  concealment 
of  the  partnership.  It  is  true  that  for  part  of  the  time  there  was  no 
partnership  sign  upon  the  building.  But  there  was  no  sign  of  any 
kind,  and  therefore  no  effort  to  mislead  any  one  as  to  the  true  relation 
of  the  parties.  We  think  that  under  the  facts  of  the  case  the  question 
of  knowledge  as  to  the  partnership  is  immaterial.  In  our  opinion  the 
court  rightfully  directed  a  verdict  for  the  plaintiff. 

Affirmed. 


H.   B.  CLAFFLIN  CO.  et  al.  v.  EVANS  et  al. 

(Supreme  Court  of  Ohio,  1S96.    55  Ohio  St..  183,  45  N.  E.  3,  60  Am.  St.  Rep. 

686.) 

In  the  matter  of  the  assignment  of  Snodgrass  Bros.  The  case  orig- 
inated in  the  probate  court,  upon  an  application  for  an  order  direct- 
ing the  assignee  of  the  Snodgrass  Bros,  to  distribute  funds  in  his  hands 
to  certain  creditors  who  were  asserting  priority  by  virtue  of  liens 
alleged  to  have  been  acquired  previous  to  the  assignment.  The  appli- 
cation was  resisted  by  the  general  creditors,  and  an  appeal  taken  from 
the  judgment  rendered  to  the  court  of  common  pleas,  where  a  special 
finding  was  made  of  the  facts,  which,  so  far  as  they  are  material  to 
an  understanding  of  the  questions  upon  which  the  case  is  reported, 
are  substantially  as  follows : 

The  Snodgrass  Bros,  was  the  name  of  a  co-partnership  which,  prior 
and  up  to  the  30th  day  of  June,  1892,  had  been  engaged  in  carrying  on 
a  commercial  business  in  Delaware  county.  It  had  become  financially 
embarrassed,  and  on  that  day  was  confessedly  insolvent.  The  firm 
consisted  of  John  F.  Snodgrass,  who  had  the  actual  charge  of  the  part- 
nership effects,  and  the  entire  management  and  control  of  the  business, 
and  Samuel  Snodgrass,  who  was  a  resident  of  the  state  of  California, 
where  he  was  engaged  in  other  business  not  connected  with  that  of  the 
firm,  and  who  at  no  time  had  taken  any  active  part  in  the  business  of 
the  firm.  John  F.  Snodgrass,  becoming  aware  of  the  insolvency  of 
the  firm,  and  convinced  of  the  certainty  of  immediate  suspension  of 
business,  concluded  to  make  an  assignment  of  the  effects  of  the  part- 
nership for  the  benefit  of  its  creditors;  but  desired,  before  doing  so, 
to  create  certain  preferences.    With  that  purpose  in  view,  on  the  29th 


132  NATURE    AND    CHARACTERISTICS 

day  of  June,  1892,  he  executed,  in  the  firm  name,  separate  promissory 
notes,  making  them  payable  respectively  to  the  creditors  whom  he  de- 
sired) to  prefer,  for  the  amount  of  the  firm's  indebtedness  to  each  cred- 
itor. These  notes  were  dated  back,  so  as  to  appear  to  be  due,  and 
each  had  attached  a  warrant  of  attorney,  authorizing  judgment  to  be 
taken  upon  it  by  confession  in  any  court  of  record ;  and  on  the  same 
day  judgments  were  obtained  on  each  of  the  notes  in  another  county, 
upon  which  executions  were  issued  to  the  sheriff  of  Delaware  county, 
who,  early  on  the  morning  of  the  next  day  (June  30,  1892),  received 
the  writs,  and  at  7  o'clock  on  that  morning  levied  the  same  on  the 
partnership  property,  and  made  return  of  the  levies  of  that  date.  In 
the  meantime,  after  the  writs  were  received  by  the  sheriff,  but  before 
any  of  the  levies  were  made,  John  F.  Snodgrass,  without  having  con- 
sulted his  co-partner,  who  was  then  absent  from  the  state,  executed 
in  the  name  and  behalf  of  the  firm  an  assignment  of  all  the  partner- 
ship property  to  a  trustee  for  the  benefit  of  the  firm  creditors,  and 
handed  it  to  the  probate  judge  of  Delaware  county,  with  instructions 
not  to  file  it  until  after  the  executions  should  be  levied  by  the  sheriff. 
From  the  time  the  deed  of  assignment  was  so  handed  to  him  it  con- 
tinued in  the  custody  of  the  probate  judge,  who,  following  the  instruc- 
tions he  had  received,  did  not  mark  it  "Filed"  until  after  the  levies  of 
the  executions  were  made. 

This  was  done  in  order  that  the  execution  creditors  might  have  prior- 
ity over  the  general  creditors.  The  assignee  qualified,  took  possession 
of  the  property,  and  sold  it,  having  agreed  with  the  execution  creditors 
that  the  proceeds  should  stand  in  the  place  of  the  property,  and  the 
rights  of  the  creditors,  with  respect  to  it,  be  determined  on  distribu- 
tion. The  assignment  was  adjudged  to  be  valid,  but  the  court  held 
that  it  did  not  take  effect  until  it  was  marked  "Filed"  by  the  probate 
judge,  which,  being  after  the  levies  were  made,  entitled  the  execu- 
tion creditors  to  priority  in  the  distribution  of  the  fund ;  and,  as  that 
was  insufficient  to  pay  all  of  them  in  full,  it  was  ordered  distributed 
among  them  in  proportion  to  the  amount  of  their  respective  claims. 
That  judgment  was  affirmed  by  the  circuit  court,  and  the  H.  B.  Claf- 
flin  Company  and  others,  the  general  creditors,  who  were  denied  par- 
ticipation in  the  fund,  prosecute  error  in  this  court. 

Williams,  C.  J.  The  plaintiffs  in  error,  it  is  conceded,  are  entitled 
to  share  in  the  fund  for  distribution  by  the  assignee  ratably  with  the 
creditors  who  were  accorded  priority  by  the  judgment  below,  unless 
the  assignment  is  invalid,  or  did  not  take  effect  until  after  the  execu- 
tions were  levied.  The  validity  of  the  assignment  is  questioned  on 
the  ground  that,  though  executed  in  the  name  of  the  firm,  it  was  so 
executed  by  one  of  the  partners  only,  and  without  having  obtained  the 
consent  of  the  other. 

That  one  member  of  an  insolvent  firm  cannot  make  a  valid  assign- 
ment of  the  partnership  effects  to  a  trustee  for  the  benefit  of  its  cred- 
itors, against  the  expressed  will  of  a  co-partner,  or  without  his  assent, 


TRANSFER   BY    ACT    OF   A    SINGLE    PARTNER  133 

when  he  is  present  or  accessible,  was  held  by  this  court  in  Holland 
V.  Drake,  29  Ohio  St.  441.  That  decision  is  placed  upon  the  ground 
that  the  appointment  of  a  trustee  to  dispose  of  the  effects  of  the  firm  for 
the  benefit  of  its  creditors  is  not  within  the  contemplation  of  the  ordi- 
nary partnership,  or  the  usual  course  of  its  business,  and  therefore  be- 
yond the  scope  of  the  agency  arising  from  the  partnership  relation. 
The  contrary  doctrine  is  maintained  by  high  authority,  and  with  much 
show  of  reason.  It  is  not  doubted  that  one  partner  may  sell  any  part 
of  the  partnership  property  to  one  or  more  of  the  creditors  in  pay- 
ment of  the  partnership  indebtedness,  or  sell  all  of  its  effects  to  all  of 
its  creditors ;  and,  if  insufficient  to  satisfy  their  debts  in  full,  the  sale 
may  be  so  made  to  them  as  to  secure  a  pro  rata  division ;  and  it  is  not 
surprising  that  authorities  are  found  which  strenuously  maintain  that 
the  power  of  the  partner  to  accomplish  the  same  result  by  an  assign- 
ment to  a  trustee  to  make  such  distribution  is  included  in  the  agency 
resulting  from  the  partnership  relation.  The  dissolution  of  the  part- 
nership ensues  not  less  certainly  from  a  sale  of  the  whole  of  its  ef- 
fects directly  to  the  creditors  than  from  the  transfer  to  a  trustee  for 
their  benefit. 

But  we  are  not  disposed  to  depart  from  the  rule  laid  down  in  Hol- 
land V.  Drake,  supra,  nor  are  we  disposed  to  extend  it.     It  does  not 
apply  where  the  partner  whose  assent  has  not  been  obtained  to  the 
assignment  was  not  accessible  in  the  exigency  which  seemed  to  call 
for  immediate  action,  nor  where  his  authority  or  assent  may  be  fairly 
implied  from  the  situation  of  the  parties,  or  the  manner  of  conducting 
the  business.     In  the  case  referred  to,  the  partner  whose  assent  was 
lacking  not  only  resided  in  the  city  where  the  partnership  had  its  place 
of  business,  but  he  was  the  active  managing  member  of  the  firm,  hav- 
ing control  and  management  of  its  property  and  business.     The  cir- 
cumstances were  such  as  to  repel,  rather  than  give  rise  to,  any  in- 
ference of  authority  or  assent  by  him  to  a  final  disposition  of  the  firm 
effects  by  his  co-partner,  who  had  taken  no  active  part  in  its  affairs. 
The  situation  is  reversed  in  the  case  we  have  before  us.     Here  the 
partner  who  executed  the  assignment  was  the  active  managing  member 
of  the  firm,  having  the  entire  charge  and  control  of  the  partnership 
business  and  custody  of  its  property ;   and  it  is  plainly  inferable  from 
the  permanent  absence  of  the  other  partner,  and  his  total  inattention 
to  the  business,  that  he   intended  to  intrust  the  affairs  of  the  firm 
wholly  to  the  resident  partner.    The  absent  partner,  having  withdrawn 
from  participation  in  the  conduct  of  the  partnership  affairs,  and  being 
inaccessible  for  consultation  and  advice,  might  reasonably  expect  and 
be  held  to  intend  that  the  member  placed  in  control  should  not  only 
exercise  the  implied  powers  of  agency  ordinarily  possessed  by  a  part- 
ner, but,  in  addition,  should  have  the  discretionary  power  in  case  of 
emergency  to  do  what,  under  the  circumstances,  should  appear  to  be 
just  and  proper  in  the  disposition  of  the  firm  property.     And  where 
a    commercial    house   so   situated    is   overtaken   by    financial    distress 


134  NATURE    AND    CHARACTERISTICS 

amounting  to  obvious  insolvency,  the  authority  of  the  acting  partner 
to  appropriate  the  property  to  the  creditors  equally,  by  placing  it  in 
the  hands  of  a  trustee  for  that  purpose,  may  well  be  presumed,  in  the 
absence  of  express  dissent  by  the  co-partner,  or  of  circumstances 
which  would  fairly  indicate  his  dissent.  Equality  among  creditors  of 
equal  merit  is  favored  in  equity,  and  accords  with  natural  justice; 
and  a  disposition  of  the  partnership  assets,  in  case  of  insolvency,  which 
secures  that  equality,  the  courts  will  not  be  eager  to  disturb. 

The  validity  of  an  assignment  of  the  partnership  property  executed 
by  one  partner  in  the  name  of  the  firm,  under  circumstances  similar 
to  those  existing  in  the  present  case,  was  sustained  in  an  opinion  by 
Chief  Justice  Marshall  in  Anderson  v.  Tompkins,  1  Brock.  456,  Fed. 
Cas.  No.  365,  and  also  by  the  same  learned  judge  in  Harrison  v.  Sterry, 
5  Cranch,  289,  3  L.  Ed.  104.  And  it  was  held  in  McCullough  v.  Som- 
merville,  8  Leigh  (Va.)  415,  that,  "when  a  partner  resides  out  of  the 
state  where  the  partnership  business  is  carried  on,  the  managing  part- 
ner in  charge  of  the  business  may  make  a  valid  assignment  of  the  firm 
effects  for  the  benefit  of  its  creditors."  We  find  no  difficulty,  there- 
fore, in  sustaining  this  assignment,  both  on  reason  and  authority,  with- 
out calling  in  question  the  decision  in  Holland  v.  Drake,  supra. 

There  having  been  a  valid  execution  of  the  assignment,  the  ques- 
tion is  presented,  when  did  it  take  effect  so  as  to  vest  the  title  to  the 
property  in  the  assignee?  This  question  is  answered  by  the  statute, 
which  provides  that  every  assignment  for  the  benefit  of  creditors  shall 
take  effect  from  the  time  of  its  delivery  to  the  probate  judge  of  the 
proper  county,  and  such  delivery  may  be  made  by  the  assignor  to 
the  probate  judge,  "either  before  or  after  its  delivery  to  the  assignee;" 
and  the  probate  judge  shall  indorse  thereon  the  exact  time  of  its  de- 
livery and  "note  the  filing  on  the  journal  of  the  court."  Rev.  St.  § 
6335.  The  instrument  of  assignment  in  question  was  delivered  to  the 
probate  judge  of  Delaware  county  when  it  was  handed  to  him  by 
the  assignor  on  the  morning  of  the  30th  day  of  June,  1892.  True, 
it  was  so  handed  to  him,  as  shown  by  the  findings  of  fact,  with  in- 
structions not  to  indorse  upon  it  the  exact  time  of  delivery,  but  to 
make  the  date  of  its  delivery  appear  to  be  subsequent  to  the  levies  of 
the  executions,  and  thus  enable  the  execution  creditors  to  secure  a 
lien  giving  them  priority  over  the  other  creditors.  The  assignment 
was  nevertheless  delivered  to  the  probate  judge  when  it  was  placed  in 
his  possession,  and)  there  was  no  condition  attached  to  the  delivery. 
It  was  the  purpose  and  intention  of  the  assignor  that  the  instrument 
should  become  operative  as  an  assignment,  and  it  thereafter  remained 
in  the  custody  of  the  judge.    There  was  no  other  delivery  of  it. 

The  assignee  qualified  under  it,  and  has  proceeded  in  the  execution 
of  the  trust.  By  the  positive  terms  of  the  statute,  the  assignment  be- 
came effective  from  the  time  of  such  actual  delivery,  and  the  observ- 
ance by  the  probate  judge  of  the  assignor's  instructions  to  delay  mak- 
ing the  indorsement  of  the  filing,  and  so  make  it  as  to  show  its  filing 


TRANSFEKS   OF  PARTNER'S   INTEREST  l-'^-^ 

of  a  date  later  than  its  delivery,  could  not  defeat  or  postpone  its  oper- 
ation, or  change  the  legal  consequences  which  resulted  from  its  de- 
livery. Upon  receiving  the  instrument,  the  probate  judge  had  a  plain 
statutory  and  official  duty  to  perform,  which  was  to  indorse  thereon 
the  exact  time  it  was  so  received,  and  make  a  corresponding  entry 
on  the  journal  of  the  court.  The  presumption  of  course,  is  that  duty 
was  performed,  and  the  indorsement  speaks  the  truth.  The  indorse- 
ment, however,  is  but  prima  facie  evidence  of  the  time  of  the  filing, 
and  the  true  date  of  the  delivery  of  the  instrument  may  be  shown. 
It  is  established  by  the  finding  of  the  trial  court  that  the  deed  of  as- 
signment in  question  was  in  fact  delivered  to  the  probate  judge  be- 
fore the  executions  were  levied,  but  was  held  by  him,  and  not  indorsed 
"Filed,"  until  after  the  levies  were  made,  in  obedience  to  the  instruc- 
tions of  the  assignor ;  from  which  that  court  concluded; — erroneously, 
as  we  think — that,  as  a  matter  of  law,  there  was  not  a  delivery  until 
the  date  of  the  filing  was  so  indorsed  thereon.  It  seems  clear  that  any 
such  understanding  or  arrangement  must  be  wholly  ineffectual  to  dis- 
place or  interfere  with  rights  which  accrued  upon  the  delivery  of  the 
Ussignment. 

The  judgment  below  must  be  reversed),  the  application  of  the  de- 
fendants in  error  overruled,  and  the  cause  remanded  to  the  probate 
;ourt  for  further  proceedings.    Judgment  accordingly. 


X.  Successive  or  Simultaneous  Transfers  of  Each  Partner's 

Interest  ^^ 


DONER  et  al.  v.  STAUFFER  et  al. 
^Supreme  Court  of  Pennsylvania,  1829.     1  Pen.  &  W.  198,  21  Am.  Dec.  370.) 

This  was  a  feigned  issue,  directed  by  the  court  and  joined  between 
the  defendants  in  error,  who  were  the  plaintiffs  below  (and  for  whom 
the  verdict  passed),  and  the  plaintiffs  in  error,  who  were  the  defend- 
ants below. 

It  appeared  from  the  evidence  in  the  cause  that  Daniel  Howry  and 
Benjamin  B.  Eshelman  entered  into  partnership  in  a  manufacturing  es- 
tablishment, under  the  firm  of  Howry  &  Eshelman.  They  became  con- 
siderably indebted.  Judgments  were  entered  and  executions  were  is- 
sued against  each  of  them.  Abraham  Doner,  Samuel  Herr,  John  How- 
ry, and  Samuel  Howry  had  severally  judgments  against  Daniel  Howry, 
on  each  of  which  an  execution  issued  against  him  and  was  levied  on 
the  9th  of  August,  1825,  on  the  personal  property  of  Daniel  Howry 
and  Benjamin  B.  Eshelman,  as  partners  in  trade. 

21  For  a  discussion  of  principles,  see  Giluiore  on  Partnership,  §  64. 


136  NATURE    AND    CHARACTERISTICS 

ally  obtained  judgments  against  B.  B.  Eshelman,  on  each  of  which 
judgments  an  execution  was  issued  against  him  and  levied  on  the  11th 
day  of  August,  1825,  on  Benjamin  B.  Eshclman's  share  of  the  person- 
al property  of  Benjamin  B.  Eshelman  and  Daniel  Howry,  as  partners 
in  trade.  By  virtue  of  these  and  other  executions  the  personal  prop- 
erty of  the  firm  was  sold  for  the  sum  of  $5,070.39,  which,  after  pay- 
ment of  the  costs,  left  a  balance  of  $1,779.  This  balance  was  paid  into 
court  for  distribution. 

On  a  rule  obtained  by  the  counsel  of  Stauffer,  Breckbill,  and  Eshel- 
man to  show  cause  why  the  one-half  of  the  proceeds  of  the  sale  of 
the  firm  property  should  not  be  applied  to  the  satisfaction  of  their  ex- 
ecutions against  B.  B.  Eshelman,  the  court  decided  that  the  execution 
creditors  of  Benjamin  B.  Eshelman  had  a  legal  right  to  his  share  of 
an  interest  in  the  partnership  effects  of  the  firm  of  Howry  &  Eshel- 
man as  it  stood  on  the  11th  of  August,  1825,  when  the  executions  were 
levied,  and  directed  this  issue  to  try  what  that  share  or  interest  was. 

The  plaintiffs  claimed  a  moiety  or  half  part  of  the  $4,779  as  their 
share. 

The  plaintiffs  having  closed  their  evidence,  the  defendants,  in  sup- 
port of  the  issue  taken  in  the  cause,  offered  to  prove  that  the  firm  of 
Howry  &  Eshelman  was  entirely  insolvent  on  the  11th  of  August,  1825  ; 
that  the  debts  and  claims  against  the  said  firm  existing  on  the  said  11th 
of  August,  1825,  which  were  then  unpaid,  greatly  exceeded  the  whole 
property  of  the  said  firm;  that  Benjamin  B.  Eshelman  on  the  said 
day  had  no  interest  whatever  in  the  said  firm,  and  that  Daniel  Howry, 
the  other  partner,  is  greatly  interested  in  the  application  of  the  funds 
of  the  said  firm  to  the  payment  of  the  debts  of  the  said  firm,  as  he  is 
answerable  individually  and  as  a  partner  for  the  whole  of  the  said 
debts — which  offer  being  objected  to,  the  court  overruled  the  same, 
and  delivered  the  following  opinion,  to  wit:  "I  am  satisfied  that  the 
authorities  cited  settle  the  law  as  it  applies  to  the  cases  decided ;  that 
is  to  say,  to  cases  where  there  are  separate  executions  against  one 
partner  levied  on  the  partnership  effects.  But  this  is  a  case  where  the 
whole  partnership  effects  are  swept  away  by  separate  executions  against 
each  partner,  where  the  creditors  at  large  have  no  lien.  I  must  say 
that  the  principal  object  in  directing  this  issue  was,  as  it  was  a  case 
of  great  importance,  to  give  an  opportunity  of  completely  considering 
and  reviewing  the  law  on  the  subject.  But  I  am  very  clear  that  Ben- 
jamin B.  Eshclman's  interest,  or  want  of  interest,  cannot  be  shown  by 
evidence  of  debts  due  from  the  firm,  and  that  the  testimony  offered 
relative  to  the  insolvency  of  the  firm,  and  the  interest  of  Daniel  How- 
ry in  the  application  of  the  funds  of  the  firm  to  the  payment  of  its 
debts,  cannot  be  admitted." 

To  this  opinion,  overruling  the  evidence  offered,  the  defendants 
excepted. 

Although  the  issue  joined  was  between  the  separate  execution  credit- 
ors of  the  respective  partners,  the  counsel  for  the  defense  appeared  for 


TEANSFERS   OF   PARTNER'S   INTEREST  137 

the  joint  creditors  of  the  firm  to  controvert  the  right  of  the  separate 
creditors  of  Eshelman  to  be  paid  out  of  the  fund  in  court  before  the  joint 
creditors  were  satisfied,  and  they  alleged  that  after  the  executions  of  the 
separate  creditors  were  levied  Howry  &  Eshelman  had  made  an  as- 
signment to  trustees  for  the  benefit  of  the  creditors  of  the  firm. 

The  only  question  now  raised  in  this  court,  upon  the  charge  of  the 
court  below  and  the  bill  of  exceptions,  was  whether  the  separate  ex- 
ecution creditors  of  Eshelman  had  a  right  to  be  paid  out  of  the  pro- 
ceeds of  the  sales  of  the  goods  of  the  firm  before  the  joint  creditors 
were  satisfied  out  of  that  fund. 

Gibson,  C.  J.  It  is  settled  by  a  train  of  decisions  in  the  American 
as  well  as  the  British  courts  that  the  joint  efTects  belong  to  the  firm, 
and  not  to  the  partners,  each  of  whom  is  entitled  only  to  a  share  of 
what  may  remain  after  the  payment  of  the  partnership  debts,  and,  con- 
sequently, that  no  greater  interest  can  be  derived  from  a  voluntary  as- 
signment of  his  share,  or  a  sale  of  it  on  execution.  That  a  contract 
which  enables  the  parties  to  keep  a  class  of  their  creditors  at  bay,  and 
yet  retain  the  indicia  of  ownership,  should  not  have  been  deemed  with- 
in the  statutes  of  Elizabeth,  is  attributable  exclusively  to  the  disposi- 
tion universally  manifested  by  courts  of  justice  to  encourage  trade. 
But,  such  as  it  is,  has  the  contract  of  partnership  been  established; 
and  the  principle  which  enables  the  partners  to  pledge  to  each  other 
the  joint  effects  as  a  fund  for  payment  of  the  joint  debts  has  intro- 
duced a  preference  in  favor  of  the  joint  creditors,  founded  on  no  mer- 
its of  their  own,  but  on  the  equity  which  springs  from  the  nature  of 
the  contract  between  the  partners  themselves.  The  author  of  the 
Commentaries  on  American  Law  (volume  3,  p.  38)  attributes  this 
preference  to  an  inherent  equity  in  the  joint  creditors  themselves, 
arising  from  a  supposed  acquisition  of  the  partnership  efTects  from 
their  means.  The  opinions  of  Chancellor  Kent  are  so  justly  entitled 
to  deference  that  no  prudent  judge  will  diflfer  from  him  without  hes- 
itation. Yet  I  cannot  but  adhere  to  the  opinion  I  expressed  in  Bell  v. 
Newman,  5  Serg.  &  R,  92,  that  in  cases  of  insolvency  or  bankruptcy, 
in  which  alone  the  question  of  priority  can  be  material,  the  joint  ef- 
fects consist  of  the  wreck  of  the  capital  originally  embarked.  Under 
a  joint  commission,  by  which  the  efTects  pass  to  the  assignees,  while 
the  partners  are  personally  discharged,  I  admit  that  the  preference 
of  the  joint  creditors  has  no  other  foundation,  if  it  has  any  at  all,  than 
this  supposed  inherent  equity ;  and  the  best  elementary  writer  on  the 
subject  so  disposes  of  the  difficulty.  Gow  on  Partnership,  341,  342. 
But  in  the  case  of  a  separate  commission  Lord  Eldon  expressly  puts 
it  on  the  particular  equity  of  the  partners  themselves.  Ex  parte  Ruf- 
fian, 6  Ves.  119.  And  in  the  case  of  an  execution,  Chief  Baron  IM'Don- 
ald  does  the  same.  Taylor  v.  Fields,  4  Ves.  396.  To  secure  the  firm 
from  the  extravagance  of  its  members,  by  preventing  the  capital  from 
being  withdrawn  from  the  purposes  of  the  partnership,  the  stock  is 
pledged  for  the  burden  which,  from  the  nature  of  the  connection,  is 
to  be  borne  by  all ;   but,  in  molding  the  law  of  partnership  to  its  pres- 


138  NATURE    AND    CHARACTERISTICS 

ent  form,  the  credit  gained  by  giving  the  joint  creditors  a  preference 
was,  if  an  object  at  all,  a  very  remote  one.  Accordingly,  with  the 
single  exception  of  a  joint  commission,  we  find  that,  wherever  the 
partners  are  not  individually  involved,  the  joint  creditors  have  no 
preference  whatever,  as  in  the  instance  of  a  bona  fide  assignment  of 
the  effects  to  one  of  the  partners  after  the  partnership  has  been  dis- 
solved. 

In  consequence  of  the  rule  as  I  have  stated  it,  a  separate  execution 
creditor  sells,  not  the  chattels  of  the  partnership,  but  the  interest  of 
the  partner,  incumbered  with  the  joint  debt;  and  the  joint  creditors, 
therefore,  have  no  claim  to  the  proceeds.  To  allow  them  the  proceeds, 
and  recourse  to  the  property  in  the  hands  of  the  purchaser,  would  sub- 
ject it  to  a  double  satisfaction.  Neither  can  they  take  the  proceeds  or 
the  property  at  their  election.  They  can  interfere  at  all  only  on  the 
ground  of  a  preference,  which  has  regard  only  to  the  partnership  ef- 
fects ;  and  these  have  not  been  sold,  but  only  the  subordinate  interest 
of  the  partner,  which  was,  strictly  speaking,  his  separate  estate.  Their 
recourse,  therefore,  is  necessarily  to  the  property  in  the  hands  of  the 
purchaser.  Now,  had  the  sheriff  sold  the  interest  of  but  one  of  the 
partners,  the  execution  creditor  would  have  clearly  been  entitled  to 
the  proceeds.  But  although  he  sold  the  whole  stock  at  one  operation, 
on  separate  executions  against  both,  there  was,  in  contemplation  of 
law,  a  separate  sale  of  the  interest  of  each.  What,  then,  would  have 
been  the  effect  had  these  sales  been  made  consecutively?  The  first 
in  the  order  of  time  would  have  passed  the  interest  of  the  partner, 
subject  to  the  equity  of  his  copartner,  and  the  execution  creditor 
would  have  been  entitled  to  the  price.  But  this  equity,  together  with 
the  remaining  interest  of  the  other  partner,  would  have  passed  by  the 
succeeding  sale  to  the  same  purchaser;  the  execution  creditor,  in  that 
instance,  also  taking  the  proceeds.  Can  it  make  a  difference,  then, 
that  instead  of  being  consecutive  these  two  sales  were  simultaneous? 
A  curious  question  might  arise  whether  separate  purchasers  of  the 
shares,  respectively,  would  stand  in  the  relation  of  partners,  so  as  to 
enable  the  joint  creditors  to  follow  the  goods.  It  seems  to  me  they 
would  not,  because  not  personally  involved  in  payment  of  the  debts. 
Here,  however,  where  the  shares  of  the  partners  are  united  in  the 
same  purchaser,  every  semblance  of  partnership  equities  is  at  an  end. 
As  regards  the  goods  in  the  hands  of  the  purchasers,  this  is  conceded ; 
but  the  joint  creditors  insist  that  the  proceeds  are  to  be  substituted  for 
the  goods  and  subjected  to  the  same  equities.  That  might  be  done  if 
the  proceeds  belonged  to  the  partners;  but  it  is  not  easy  to  imagine 
how  they  are  to  be  treated  as  the  owners  of  money  raised  by  a  sale 
on  executions  against  them.  For  what  purpose  should  the  ownership 
of  it  be  vested  in  them,  even  for  an  instant?  Not  to  give  the  joint 
creditors  a  preference,  for  that  would  make  the  rights  of  the  partners 
depend  on  the  claims  of  the  joint  creditors,  who,  on  the  contrary,  can 
claim  nothing  but  by  virtue  of  the  lien,  where  there  is  one,  of  the  part- 


TEANSFEES   OF  PAETNER's   INTEREST  189 

ners.  To  say  that  the  partners  have  such  a  hen  because  the  joint 
creditors  have  an  equity,  and  that  the  joint  crccHtors  have  an  equity 
because  the  partners  have  a  Hen,  would  be  to  arj^aie  in  a  circle.  Here 
the  partners  cannot  be  prejudiced  in  respect  of  their  claims  on  each 
other;  the  advantage  to  be  gained  from  an  application  of  the  joint 
effects  to  their  separate  debts  being  mutual  and  equal.  The  conse- 
quences are  precisely  the  same  as  if  the  effects  had  been  sold  on  an 
execution  against  both.  We  are  therefore  of  opinion  that  the  joint 
creditors  cannot  interpose,  and,  consequently,  that  the  rejection  of  the 
evidence,  as  well  as  the  direction  to  the  jury,  was  substantially  right. 

I  have  considered  the  question  on  principles  applicable  to  it,  in  anal- 
ogy to  w^ell-settled  parts  of  the  law  of  partnership,  rather  than  on  au- 
thority bearing  directly  on  the  point.  But  since  this  opinion  was  drawn 
my  Brother  Huston  has  directed  my  attention  to  the  case  of  Brinker- 
hoff  V.  Marvin,  5  Johns.  Ch.  (N.  Y.)  320,  which  is  direct  to  the  point, 
so  that,  independent  of  analogies,  we  have  an  authority  on  which  we 
might  safely  rule  the  cause.  But  both  principle  and  authority  are  ad- 
verse to  the  preference  claimed,  and  the  issue,  therefore,  was  correctly 
found  for  the  plaintiff. 

Huston,  J.,  dissented. 

Judgment  affirmed. 


MENAGH  V.  WHITWELL  et  al. 
(Court  of  Appeals  of  New  York,  1873.    52  N.  Y  146,  11  Am.  Rep.  683.) 

Appeal  from  a  judgment  in  favor  of  the  plaintiff  entered  upon  the 
report  of  a  referee.  This  was  an  action  for  converting  machinery, 
utensils,  lumber,  and  other  chattels  formerly  belonging  to  the  firm  of 
J.  C.  Smith  &  Co.  and  appertaining  to  a  yeast  factory  operated  by  that 
firm. 

From  the  17th  of  August  to  the  22d  day  of  December,  1SG6,  the 
firm  consisted  of  John  C.  Smith,  Hollister  E.  Goodwin,  John  Wride, 
Marietta  Huntington,  and  William  B.  Rubert,  each  being  interested 
to  the  extent  of  one-fifth.  The  firm  as  thus  constituted  contracted 
debts  to  the  Geneva  National  Bank  upon  which  judgments  were  after- 
ward recovered  against  the  above-named  parties,  viz.,  one  judgment 
for  $1,403.83,  and  one  for  $237.53,  both  recovered  May  24,.  1867.  The 
larger  judgment  embraced  claims  to  the  amount  of  $330  which  ac- 
crued after  the  withdrawal  of  John  Wride  from  the  firm.  Executions 
were  issued  on  these  judgments  on  the  25th  of  May,  18G7,  and  placed 
in  the  hands  of  the  defendant  Ringer,  who  was  deputy  sheriff  of  On- 
tario county,  and  by  virtue  of  those  executions  he  levied  upon  the 
property  on  the  19th  of  July,  1867,  and  sold  it  on  the  29th  of  July, 
1867.  The  defendant  WhitwcU  was  sheriff,  and  this  action  was  brought 
against  him  and  his  deputy  for  that  levy  and  sale.  The  plaintiff  re- 
covered four-fifths  of  the  value  of  the  property. 

The  plaintiff  makes  title  to  this  four-fifths  as  follows:    On  the  22d 


140  NATURE    AND    CHARACTERISTICS 

of  December,  1866,  John  Wride  assig^ned  all  his  interest  in  the  prop- 
erty and  business  of  the  firm  to  John  C.  Smith,  who  agreed  to  pay  the 
firm  debts,  and  on  the  4th  of  February,  18G7,  ]\1  arietta  Huntington  as- 
signed all  her  interest  in  the  property  of  the  firm  to  said  John  C.  Smith, 
who  assumed  her  place  in  the  firm.  After  these  transfers  the  same 
business  was  carried  on  by  the  remaining  partners  under  the  same 
firm  name.  The  referee  finds  that  both  of  these  transfers  were  made 
with  the  consent  of  all  the  other  members  of  the  firm,  and  in  good  faith, 
without  intent  to  defraud  the  creditors  of  the  firm. 

On  the  2Sth  of  February,  18G7,  the  firm  then  consisting  of  John  C. 
Smith,  William  B.  Rubert,  and  Hollister  E.  Goodwin,  and  Smith's 
interest  being  then  three-fifths,  he  gave  to  the  plaintiff  a  chattel  mort- 
gage upon  his  undivided  three-fifths  interest  in  the  yeast  factory,  prop- 
erty, accounts,  and  other  choses  in  action  of  the  firm  to  secure  his  in- 
dividual debt  to  the  plaintiff  of  $2,400,  payable  in  installments  in  two, 
five,  and  seven  months,  with  power  to  take  possession  and  sell  in  case 
of  default,  or  whenever  she  should  deem  herself  unsafe  before  de- 
fault. The  referee  finds  that  this  amount  was  justly  due  the  plaintiff 
for  money  loaned  by  her  to  Smith,  which  he  had  used  for  the  firm  and 
for  which  it  was  indebted  to  him,  and  that  the  mortgage  was  given 
in  good  faith,  with  the  consent  of  all  the  persons  composing  the  firm, 
and  without  intent  to  defraud  creditors.  There  is  no  express  finding 
in  respect  to  the  solvency  of  the  firm  at  the  time  of  the  giving  of  this 
mortgage. 

On  the  2d  of  February,  18G7,  William  B.  Rubert  had  given  a  like 
chattel  mortgage  on  his  one-fifth  interest  to  Samuel  E.  Rubert  to  se- 
cure an  individual  debt  of  $500,  payable  in  five  days.  The  referee  finds 
that  this  was  a  just  debt  for  money  loaned,  and  that  the  mortgage  was 
executed  in  good  faith  to  secure  the  debt,  and  without  any  fraudulent 
intent.  It  does  not  appear  that  any  of  the  other  partners  consented  to 
this  mortgage. 

On  the  10th  day  of  May,  1867,  the  plaintiff  and  Samuel  E.  Rubert 
took  possession  of  the  property  mentioned  in  their  respective  mort- 
gages, and  after  advertisement  it  was  sold  on  the  18th  of  May,  1867; 
the  three-fifths  interest  of  John  C.  Smith  being  purchased  by  the  plain- 
tiff for  $1,000,  and  the  one-fifth  interest  of  William  B.  Rubert  being 
bought  in  by  Samuel  E.  Rubert  for  an  amount  less  than  his  mortgage. 
On  the  same  day  John  C.  Smith  sold  and  delivered  to  the  plaintiff  all 
his  interest  in  a  quantity  of  lumber,  boxes  and  other  material  then  on 
the  premises,  and  belonging  to  the  firm,  for  $200,  which  was  applied 
in  part  payment  of  the  plaintiff's  mortgage.  The  referee  finds  that 
this  sale  was  in  good  faith  and  without  any  fraudulent  intent.  This 
lumber,  etc.,  was  levied  upon  and  sold  by  the  defendants  and  is  em- 
braced in  the  plaintiff's  recovery.  On  the  same  day  on  which  the  plain- 
tiff and  Samuel  E.  Rubert  took  possession  under  their  mortgages,  viz.. 
the  10th  of  May,  1867,  Hollister  E.  Goodwin,  the  only  remaining  mem- 
ber of  the  firm,  transferred  his  undivided  one-fifth  interest  in  the  prop* 


TEANSFER8   OF   PARTNER'S   INTEREST  141 

erty  and  business  of  the  firm  to  Mary  B.  Goodwin,  who  still  owns  the 
same,  but  never  became  a  member  of  the  firm.  The  referee  has  not 
found  that  there  was  any  consideration  for  this  transfer,  or  what  was 
its  object,  or  that  it  was  made  in  good  faith. 

The  only  findings  in  respect  to  the  solvency  of  the  firm  at  the  times 
of  these  several  transactions  are  that,  on  the  22d  of  December,  18C6, 
when  John  Wride  withdrew  from  the  firm,  transferring  his  interest 
to  John  C.  Smith,  the  firm  was  somewhat  embarrassed,  but  was  not 
icnown  or  believed  to  be  insolvent  by  either  Wride  or  Smith,  and  that 
on  the  4th  of  February,  1867,  when  Marietta  Huntington  transferred 
her  interest,  the  financial  aflfairs  of  the  firm  were  about  the  same  as 
they  were  on  the  22d  of  December,  186G;  that  the  firm  was  largely  in- 
debted and  somewhat  embarrassed;  that  the  value  of  its  property  and 
assets  depended  in  part  upon  the  continuance  of  its  business,  and,  in 
case  such  business  was  continued  and  properly  managed,  the  property 
and  assets  of  the  firm  were  more  than  sufficient  to  pay  its  debts.  The 
referee  further  finds  that  at  the  time  bf  the  seizure  and  levy  by  the  de- 
fendants the  property  was  in  the  possession  of  the  plaintifif  and  Samuel 
E.  Rubert,  and  was  of  the  value  of  $2,150;  that  the  plaintifif  was  the 
owner  of  an  undivided  three-fifths,  and  Samuel  E.  Rubert  of  one  un- 
divided fifth  part  thereof;  that  Mary  B.  Goodwin  was  the  owner  of 
the  other  undivided  fifth  part  thereof;  and  that,  on  the  loth  of  Au- 
gust, 1867,  and  before  the  commencement  of  this  action,  the  said  Sam- 
uel duly  assigned  to  the  plaintiff  all  his  right  to  the  property  and  cause 
of  action  against  the  defendants  for  taking  possession  thereof. 

As  conclusion  of  law  he  finds  that  at  the  time  of  the  levy  neither 
of  the  defendants  in  the  execution  had  any  leviable  interest  in  the  prop- 
erty, but  that  it  belonged,  four-fifths  to  the  plaintifif,  and  one-fifth  to 
Mary  B.  Goodwin ;  that  the  bank  had  no  lien  thereon ;  and  that  the 
plaintifif  was  entitled  to  recover  four-fifths  of  the  value,  amounting  to 
$1,720,  with  interest  from  the  time  of  the  conversion. 

Rapallo,  J.^^  The  mortgages  executed  by  John  C.  Smith  and  Wil- 
liam P.  Rubert  appear  to  have  been  regarded  by  the  learned  referee  as 
transferring  an  undivided  four-fifths  of  the  corpus  of  the  partnership 
property  therein  described.  He  has  found,  as  to  the  mortgage  from 
Smith,  that  it  was  executed  and  delivered  with  the  assent  of  the  other 
members  of  the  firm.  This  mortgage,  if  such  be  its  true  construction, 
having  been  given  to  secure  the  individual  debt  of  the  partner,  even  if 
effectual  as  to  the  firm,  by  reason  of  the  concurrence  of  all  the  part- 
ners giving  it,  would  be  a  fraudulent  misapplication  of  the  partner- 
ship property,  and  void  as  to  the  creditors  of  the  firm,  under  the  prin- 
ciple of  the  cases  of  Ransom  v.  Vandeventer,  41  Barb.  307,  and  Wil- 
son V.  Robertson,  21  N.  Y.  587,  unless  the  firm  were  solvent  at  the 
time  the  mortgage  was  given,  and  sufficient  property  would  remain, 
over  and  above  that  devoted  by  that  instrument  to  the  payment  of  the 

22  Part  of  the  opinion  of  Rapallo,  J.,  and  tlie  coucurriug  of  Allen,  J.,  are 
omitted. 


142  NATURE    AND    CHARACTERISTICS 

individual  debt,  to  pay  the  debts  of  the  firm.  The  Supreme  Court  have 
considered  that  the  findings  of  the  referee  fail  to  disclose  any  insol- 
vency, but,  on  the  contrary,  establish  solvency  of  the  firm  at  the  time 
the  mortgages  were  given.  We  cannot  concur  in  this  view  of  the  ef- 
fect of  the  findings,  but  think  that  the  facts  found  show  that  the  firm 
was  insolvent  when  the  mortgages  were  given,  and,  if  there  were  any 
doubt  upon  that  point,  they  clearly  establish  that  the  diversion  of  four- 
fifths  of  its  properties  to  the  individual  debts  of  two  of  the  partners 
would  make  it  insolvent. 

According  to  these  findings  the  firm  was,  in  February,  18G7,  and 
had  been  from  December,  1866,  largely  indebted  and  embarrassed, 
and  the  value  of  its  property,  and  its  consequent  ability  to  pay  its  debts, 
depended  in  part  upon  the  continuance  and  proper  management  of  its 
business.  The  mortgages  were  given  on  the  2d  and  28th  of  Febru- 
ary, 1867.  If  they  were  intended  to  be  liens  upon  the  corpus  of  the 
property,  as  they  have  been  treated  by  the  referee,  and  not  merely  liens 
upon  the  surplus  which  should  belong  to  the  partners,  respectively, 
after  the  payment  of  the  firm  debts,  it  is  evident,  from  the  facts  stated 
as  existing  at  the  time,  as  well  as  from  the  result,  that  their  enforce- 
ment would  prevent  the  firm  creditors  from  collecting  their  demands 
out  of  the  firm  property,  and  that,  under  the  principle  of  the  cases 
cited,  they  were  fraudulent  and  void  as  to  such  creditors.  If  so,  the 
mortgagees,  by  purchasing  at  the  sale  under  the  mortgages,  acquired 
no  valid  title  as  against  such  creditors,  and  the  plaintiff  was,  conse- 
quently, not  entitled  to  recover. 

Assuming,  however,  that  the  mortgages  were  intended  to  pass  mere- 
ly the  individual  interests  of  the  mortgaging  partners  in  the  common 
stock,  and  for  that  reason  were  not  fraudulent  as  to  the  firm  creditors, 
then  it  becomes  necessary  to  consider  their  legal  efifect  upon  the  rights 
of  creditors  of  the  firm.  It  is  clear  that  the  remaining  partner  was  en- 
titled to  the  control  of  the  firm  property  so  long  as  he  retained  his 
interest,  and  to  apply  it  to  the  firm  debts,  and  that  the  mortgagees  ac- 
quired only  a  right  to  the  surplus,  if  any,  which  would  be  found  to  be- 
long to  the  mortgagors  on  the  settlement  of  the  accounts. 

And  so  long  as  any  of  the  partners  had  this  dominion  over  the  firm 
property  it  can  hardly  be  questioned  that  it  was  subject  to  levy  on  ex- 
ecution at  the  suit  of  a  firm  creditor.  Lovejoy  v.  Bowers,  11  N.  H. 
404;  Coover's  Appeal,  29  Pa.  9,  70  Am.  Dec.  149;  Pierce  v.  Jackson, 
6  Mass.  243. 

But  the  point  upon  which  the  judgment  was  sustained  in  the  Su- 
preme Court,  at  General  Term,  was  that  after  the  execution  of  the 
mortgages  PI.  E.  Goodwin,  the  only  remaining  partner,  made  a  sepa- 
rate transfer  to  a  third  party  of  his  individual  interest  in  the  partner- 
ship properties,  and  on  this  ground  it  was  held  that  when  the  execu- 
tion was  levied  none  of  the  defendants  in  the  execution  had  any  levi- 
able interest  in  the  property  levied  upon,  and  it  was  further  held  that 
the  plaintiff,  who  had  purchased  the  interest  of  S.  E.  Rubert  under  his 


TRANSFERS   OF   PARTNER'S   INTEREST  143 

mortgage,  was  entitled,  by  virtue  of  the  two  mortgages  and  of  the  pur- 
chase at  the  sale  under  them,  to  recover  the  value  of  four-fifths  of  the 
corpus  of  the  partnership  property  levied  upon  by  the  defendants,  with- 
out regard  to  the  partnership  debts. 

This  position  is  not  without  authority  in  its  support.  It  is  founded 
upon  the  theory  that  the  separate  transfers  of  the  individual  interests 
of  all  the  partners  divested  the  title  of  the  firm;  that  firm  creditors 
have  no  lien  upon  the  partnership  efTects,  and  no  direct  right  to  com- 
pel their  application  to  firm  debts  in  preference  to  individual  debts; 
that  the  right  to  compel  this  application  is  an  equity  vested  in  the 
partners  themselves,  and  exists  only  as  between  each  other;  that  so 
long  as  this  equity  exists  in  any  of  the  partners  the  creditors  have  an 
equity  to  compel  its  enforcement  between  the  partners,  and  may  by 
this  means  obtain  the  application  of  the  partnership  properties  to  their 
demands,  in  preference  to  the  individual  debts  or  separate  disposi- 
tions of  any  of  the  partners — in  other  words,  "that  the  equities  of  the 
creditors  can  only  be  worked  out  through  the  equities  of  the  partners." 
From  these  premises  the  conclusions  have  been  drawn  that,  if  such 
equities  are  waived  or  released  by  the  partners  themselves,  the  cred- 
itors lose  them,  and  that  a  transfer  of  the  individual  interest  of  a  part- 
ner in  the  firm  property  to  a  third  person  extinguishes  the  equity  of 
the  partner,  and  consequently  that  of  the  creditors,  which  is  dependent 
upon  it.  This  doctrine  has  been  carried  to  the  extent  of  holding  that, 
if  the  individual  interests  of  each  of  the  members  of  a  firm  are  suc- 
cessively sold  under  executions  against  such  members,  respectively, 
for  their  individual  debts,  the  purchasers  acquire  the  corpus  of  the 
property  free  from  the  copartnership  debts,  and  the  equities  of  the 
partners  and  partnership  creditors  are  extinguished.  Coover's  Appeal, 
29  Pa.  9,  70  Am.  Dec.  149. 

The  injustice  and,  it  may  be  said,  the  absurdities  which  result  from 
such  a  view  lead  to  an  inquiry  into  its  correctness.  A  firm  may  be 
perfectly  solvent,  though  the  members  are  individually  insolvent,  and 
yet  in  such  a  case  the  doctrine  that  the  property  of  the  firm  is  divested, 
and  the  equities  of  the  partners  and  partnership  creditors  are  extin- 
guished, by  separate  transfers  of  the  individual  interests  of  all  the  part- 
ners, might  result,  not  only  in  an  appropriation  of  all  the  properties 
of  the  firm  to  the  payment  of  the  individual  debts,  to  the  entire  exclu- 
sion of  the  firm  creditors,  but  to  a  most  unjustifiable  sacrifice  and 
waste  of  such  properties.  For  instance,  suppose  a  firm  to  consist  of 
three  jnembers,  each  having  an  equal  interest,  and  to  be  possessed  of 
assets  to  the  amount  of  $300,000,  and  to  owe  debts  to  half  of  that 
amount,  the  interest  of  each  partner,  supposing  their  accounts  between 
themselves  to  be  even,  is  $50,000.  The  members  of  the  firm  are  in- 
dividually indebted.  One  of  them  sells  his  share,  and  receives  for  it 
$50,000,  which  is  its  actual  value.  The  share  of  another  of  the  part- 
ners is  sold  under  execution,  and  brings  its  full  value,  $5,000.  Thus 
far  one  partner  remains,  and  he  has  an  equity  to  have  the  firm  debts 
paid,  and  those  who  have  sold  out  are  protected  against  those  debts. 


144  NATURE    AND    CHARACTERISTICS 

The  purchasers  of  the  separate  interests  are  entitled  to  the  surphis  only. 
The  joint  creditors  still  have  their  recourse  against  the  partnership 
property,  and  the  right  to  levy  on  such  of  it  as.  is  subject  to  sale  on 
execution;  but  before  any  levy  the  remaining  partner  sells  out  his  in- 
dividual interest,  or  it  is  sold  on  execution.  According  to  the  doctrine 
applied  in  the  present  case,  and  maintained  in  the  case  of  Coover's  Ap- 
peal, supra,  the  firm  property  is  by  this  last  sale  relieved  from  the 
partnership  debts,  the  two  shares  first  sold  are  at  once  changed  from 
interests  in  the  surplus  to  shares  in  the  corpus  of  the  property  free 
from  the  debts,  their  value  is  doubled,  and  the  fund  which  should  have 
gone  to  pay  the  joint  debts  is,  without  any  consideration,  appropriated 
by  the  transferees  of  the  individual  interests  of  the  partners. 

Such  is,  in  substance,  the  operation  performed  in  the  present  case. 
Assuming  that  the  mortgages  are  intended  to  convey  only  separate  in- 
terests of  the  mortgagors  (which,  as  has  been  shown,  is  the  only 
theory  upon  which  they  can  escape  being  regarded  as  fraudulent), 
the  mortgaged  property  was,  at  the  time  the  mortgages  were  given, 
liable  to  be  taken  for  the  partnership  debts.  The  mortgages  were  but 
a  slender  security,  and  their  value  dependent  upon  the  firm  debts  being 
paid.  This  state  of  affairs  continued  so  long  as  Hollister  E.  Goodwin 
retained  his  one-fifth  interest  in  the  firm.  The  firm  property  was 
legally  under  his  dominion  for  the  payment  of  firm  debts;  and  the 
firm  creditors,  if  they  then  had  their  execution,  could  have  rightfully 
levied  upon  it,  or  availed  themselves  of  Goodwin's  equity  as  to  any 
property  which  must  be  reached  in  that  form.  But  on  the  10th  of 
May,  18G7,  Hollister  E.  Goodwin  made  a  transfer  of  his  interest  in 
the  property  of  the  firm  to  one  Mary  B.  Goodwin;  and  on  the  same 
day  the  plaintiff  and  Samuel  E.  Rubert  took  possession  under  their 
mortgages.  The  referee  has  not  found  what  was  the  consideration 
or  purpose  of  this  assignment  from  Hollister  E.  to  Mary  B.  Goodwin, 
nor  has  he  expressly  found  that  it  was  made  in  good  faith.  But  the 
effect  claimed  for  it  is  that,  Hollister  E.  Goodwin  being  the  only  re- 
maining partner,  the  transfer  of  his  interest  divested  him  of  his  do- 
minion over  the  partnership  property  and  of  his  equity  to  require  the 
application  of  the  partnership  property  to  the  payment  of  its  debts, 
and  that,  as  the  partnership  creditors  could  only  reach  the  property 
through  him,  he,  by  this  transfer  or  surrender  of  his  rights,  had  cut 
off  their  access  to  it,  and  thrown  it  into  the  hands  of  the  transferees 
of  the  individual  partners,  unincumbered  by  firm  debts. 

Waiving  any  question  as  to  the  bona  fides  of  this  transaction,  the 
referee  not  having  found  it  fraudulent,  and  treating  the  sale  of  Good- 
win's interest  as  if  it  had  been  made  under  an  execution  against  him, 
we  come  back  to  the  question  whether  the  consequences  claimed  do 
legally  follow  from  separate  sales  of  the  individual  interests  of  the 
several  partners. 

It  would  be  a  superfluous  labor  to  trace  the  history  of  the  changes 
which  have,  from  time  to  time,  taken  place  in  the  views  of  the  courts 


TEANSFERS    OF   PARTNEE'S   INTEREST  145 

respecting  the  nature  of  the  interests  of  individual  partners  in  the  com- 
mon stock  of  a  firm,  and  the  respective  rights  of  separate  and  joint 
creditors;  but  it  is  sufficient  to  observe  that  they  have  resulted  in  a 
general  recognition  of  the  doctrine  that  as  between  a  firm  and  its 
creditors  the  property  is  vested  in  the  firm,  and  that  no  individual 
partner  has  an  exclusive  right  to  any  part  of  the  joint  stock  until  the 
firm  debts  are  paid  and  a  balance  of  account  is  struck  between  him  and 
his  copartners,  and  the  amount  of  his  interest  accurately  ascertained. 

The  corpus  of  the  effects  is  joint  property,  and  neither  partner  sepa- 
rately has  anything  in  that  corpus ;  but  the  interest  of  each  is  only 
his  share  of  what  remains  after  the  partnership  debts  are  paid  and 
accounts  are  taken.  West  v.  Skip,  1  Ves.  239  ;  Fox  v.  Hanbury,  Cowp. 
445;  Taylor  v.  Fields,  4  Ves.  396;  15  Ves.  559,  note;  Pierce  v.  Jack- 
son, 6  Mass.  243;  Doner  v.  Stauffer,  1  Pen.  &  W.  (Pa.)  198,  21  Am. 
Dec.  370;  2  Kent,  Com.  (11th  Ed.)  78,  note;  Collyer  on  Partn.  (3d 
Am.  Ed.,  by  Perkins)  pp.  704  to  710,  notes  to  §  822;  Story  on  Partn. 
notes  to  §§  261,  262,  263;  Crane  v.  French,  1  Wend.  311;  Witter  v. 
Richards,  10  Conn.  37. 

Partnership  effects  cannot  be  taken  by  attachment  or  sold  on  execu- 
tion to  satisfy  a  creditor  of  one  of  the  partners,  except  to  the  extent  of 
the  interest  of  such  separate  partner  in  the  effects,  subject  to  the  pay- 
ment of  the  firm  debts  and  settlement  of  all  accounts.  3  Kent,  Com. 
(11th  Ed.)  76. 

Purchasers  of  the  share  of  an  individual  partner  can  only  take  his 
interest.  That  interest,  and  not  a  share  of  the  partnership  effects,  is 
sold,  and  it  consists  merely  of  the  share  of  the  surplus  which  shall 
remain  after  the  payment  of  the  debts  and  settlement  of  the  accounts 
of  the  firm.     3  Kent,  Com.  (11th  Ed.)  78,  note  "b." 

No  more  property  can  be  carried  out  of  the  firm  by  the  assignee 
of  one  partner  than  the  partner  himself  could  extract  after  all  the  ac- 
counts are  taken.    1  Ves.  241  (Am.  Ed.)  note;   15  Ves.  557. 

No  person  deriving  under  a  partner  can  be  in  a  better  condition  than 
the  partner  himself.     Fox  v.  Hanbury,  Cowp.  445. 

A  partner  has  no  right,  by  an  assignment  of  his  interest,  to  take 
from  the  creditors  or  other  partners  the  right  to  have  their  claims 
against  the  partnership  satisfied  out  of  its  property.  A  mortgage  made 
by  one  partner  of  his  undivided  interest  cannot  avail  against  the  cred- 
itors of  the  partnership  who  attach  the  partnership  property.  Love- 
joy  V.  Bowers,  11  N.  H.  404. 

These  principles  have  been  enunciated  in  a  great  number  of  cases, 
where  some  one  at  least  of  the  partners  retained  his  equity  to  have 
the  firm  debts  paid,  and  the  rights  of  the  creditors  to  assets  or  pro- 
ceeds, which  have  come  under  the  control  of  a  court  of  equity,  have 
been  worked  out  through  the  equity  of  that  partner.  But  I  find  no 
case  in  which  the  consequences  of  transfers  of  the  separate  interests 
of  all  the  partners  to  outside  parties  has  been  considered,  except  the 
case  of  Doner  v.  Stauffer,  1  Pen.  &  W.  (Pa.)  198.  21  Am.  Dec.  370. 

GlI.>t.PAl!T.— 10 


146  NATURE    AND    CHARACTERISTICS 

and  Coover's  Appeal,  29  Pa.  9,  70  Am.  Dec.  149,  before  referred  to. 
In  neither  of  these  cases  is  the  point  adjudicated,  for  in  both  cases  the 
joint  creditors  intervened  before  the  sale  of  the  interest  of  the  last 
remaining  partner,  and  their  right  to  priority  was  sustained,  though 
the  opinion  of  the  court  was  expressed  as  to  what  the  result  would 
have  been  if  all  the  individual  interests  had  been  first  sold. 

There  is  another  class  of  cases  in  which  the  partnership  effects  have 
been  held  to  be  liberated  from  liability  to  be  applied  to  partnership 
debts  in  preference  to  the  separate  debts  of  one  partner;  that  is,  where 
a  bona  fide  sale  has  been  made  by  a  retiring  partner,  in  a  solvent  firm 
of  two  members,  to  his  copartner,  the  latter  assuming  the  debts.  In 
such  a  case  it  is  settled  that  the  property  formerly  of  the  partnership 
becomes  the  separate  property  of  the  purchasing  partner,  and  that  the 
partnership  creditors  are  not  entitled  to  any  preference  as  against 
his  individual  creditors  in  case  of  his  subsequent  insolvency.  Ex  parte 
Ruffin,  6  Ves.  119;  Dimon  v.  Hazard,  32  N.  Y.  65.  But  in  those 
cases  the  joint  property  was  converted  into  separate  property  by  the 
joint  act  of  all  the  members  of  the  firm.  They  had  power  to  dispose 
of  the  corpus  of  the  joint  property,  and  the  exercise  of  that  power, 
when  free  from  fraud,  divested  the  title  of  the  firm  as  effectually  as 
if  they  had  united  in  a  sale  to  a  stranger.  It  remained  subject  to  exe- 
cution for  firm  debts  so  long  as  it  continued  in  the  hands  of  the  pur- 
chasing partner.  It  is  conceded  that  the  creditors  have  no  lien  which 
would  affect  the  title  of  a  purchaser  from  the  firm.  But  the  question 
now  is :  What  is  the  effect  upon  the  title  of  the  firm,  as  between  it 
and  its  creditors,  of  transfers  by  the  partners  severally  of  their  re- 
spective interests  to  third  persons?  Where  the  property  remains  in 
specie,  and  no  act  has  been  done  by  the  firm  to  divest  its  title,  but  the 
partners  have  made  separate  transfers  of  their  respective  individual 
interests  to  different  persons,  is  it  still  to  be  regarded,  as  to  the  firm 
creditors,  as  firm  property,  or  has  it  become  the  absolute  property  of 
the  several  transferees  of  the  interests  of  the  individual  partners? 

It  has  been  shown  that  no  share  in  the  corpus  of  the  property 
passed  by  either  of  these  transfers  separately,  but  merely  an  interest 
in  the  surplus,  and  which  should  be  ascertained  on  an  accounting  after 
payment  of  the  firm  debts.  But  it  is  claimed  that,  when  all  the  part- 
ners have  assigned,  their  interest  in  the  property  is  divested,  and  their 
equity  is  destroyed,  and  therefore  the  property  is  released  from  the 
debts,  and  what  was  at  the  time  of  the  assignment  a  share  of  a  con- 
tingent surplus  has  been  converted  into  a  share  of  the  corpus  of  the 
property.  Is  this  position  sound?  When  a  partner  sells  his  interest 
in  a  firm  to  a  person  other  than  his  copartner,  or  it  is  sold  on  execution 
against  him,  does  he  thereby  lose  all  equity  to  have  the  firm  debts  paid 
out  of  the  assets? 

When  he  sells  to  his  copartner  he  relies  upon  his  assumption  of 
the  partnership  debts,  and  unless  he  stipulates  for  an  application  of 
the  assets  to  that  purpose  he  parts  with  all  lien  upon  them.  But  when 
he  sells  to  a  stranger  not  liable  for  the  debts,  or  his  interest  is  sole 


TRANSFERS   OF   PARTNER'S   INTEREST  147 

on  execution,  is  not  the  right  to  have  the  debts  paid  out  of  the  prop- 
erty a  right  of  indemnity  personal  to  himself,  and  which  docs  not 
pass  by  the  sale?  Could  it  be  tolerated  that  the  interest  of  a  partner 
should  be  sold  under  execution  against  him,  on  which  sale  only  the 
value  of  his  interest  in  the  surplus  could  be  realized,  and  that  the 
purchaser  should  be  allowed  to  take  the  corpus  of  the  property  and 
leave  him  liable  for  the  debts?  If  the  legal  effect  of  the  transfer  were 
set  forth  in  the  instrument,  it  would  be  seen  that  all  the  purchaser  ac- 
quired was  a  right  to  an  account  and  to  the  partner's  share  in  the 
surplus  after  payment  of  debts,  when  ascertained,  and  that  he  had  no 
right  to  that  part  of  the  property  which  was  required  for  the  pay- 
ments of  debts;  that  the  sale  was  subject  to  the  debts,  3  Kent,  Com. 
76-78.  The  partner  whose  share  was  sold  would  manifestly  have  an 
interest  in  the  protection  and  appropriation  of  that  part  of  the  proper- 
ty in  discharge  of  his  own  liability  to  the  firm  creditors. 

I  do  not  see  how  this  right  can  be  affected  by  the  question  whether 
the  separate  interests  of  all  or  only  one  of  the  partners  is  thus  sold. 
Each  of  the  purchasers  would  acquire  an  interest  merely  in  the  sur- 
plus, and  each  partner  whose  interest  was  sold  would  have  the  right 
to  indemnity  against  the  firm  debts  by  the  application  to  such  debts 
of  so  much  of  the  property  as  might  be  necessary  for  the  purpose. 
These  debts  must  have  been  taken  into  consideration  in  fixing  the 
price  of  the  interest  sold,  and  consequently  allowed  to  the  purchaser, 
and  the  partnership  assets  are  the  primary  fund  for  their  payment. 
The  case  differs  materially  from  a  sale  by  a  retiring  copartner  lo  hi^ 
copartner,  who  is  personally  liable  for  the  debts  directly  to  the  cred- 
itors; but  even  such  a  sale  is  valid  only  when  there  is  no  insolvency 
at  the  time.  To  sell  to  an  insolvent  partner  would  be  a  clear  fraud. 
How  much  more  clearly  apparent  would  be  the  injury  to  creditors  by 
a  sale  to  a  person  not  liable  for  the  debts,  if  such  sale  had  the  effect 
to  relieve  the  property  from  them. 

It  can  hardly  be  necessary,  where  the  firm  property  remains  in 
specie,  and  is  tangible  and  capable  of  being  levied  upon,  to  resort  to 
the  equities  of  the  partners  in  case  there  has  been  no  transfer  by  the 
firm  and  the  only  adverse  claimants  are  assignees  of  the  individual 
interests  of  the  several  partners  for  their  separate  debts.  The  right 
of  the  firm  creditor  to  levy  on  property  thus  situated  can  be  sustained 
on  two  grounds.  If  the  effect  of  any  of  the  transfers  is  to  divest  the 
title  of  the  firm,  then,  if  eft'ected  by  the  acts  of  the  partner,  they  are 
clearly  fraudulent  and  void  as  to  firm  creditors,  as  is  shown  in  the 
cases  of  Ransom  v.  Vandeventer,  41  Barb.  307,  and  Wilson  v.  Robert- 
son, 21  N.  Y,  587.  An  appropriation  to  the  individual  debt  of  one 
partner  of  any  part  of  the  firm  property,  even  with  the  assent  of  his 
copartners,  is  illegal  and  void,  provided  the  firm  is  not  left  with  suffi- 
cient to  pay  its  debts.  How  absurd  it  would  be  to  hold  that  all  of  the 
partners,  by  making  separate  assignments  of  their  respective  shares 
in  the  firm  property  to  their  individual  creditors,  could  effectually 


148  NATURE    AND    CHARACTERISTICS 

divest  the  firm  of  all  its  propert}'  and  apply  it  to  their  individual  debts, 
leaving  nothing  for  the  partnership  creditors.  But  the  simple  solution 
of  the  question  is  to  hold  that  the  title  of  the  firm,  as  between  it  and 
its  creditors,  to  the  corpus  of  the  property,  or  at  least  to  so  much  of  it 
as  is  necessary  for  the  debts,  is  not  divested  by  these  separate  trans- 
fers to  strangers. 

As  is  stated  by  Prof.  Parsons,  in  his  work  on  Partnership  (pages 
356  to  362  [2d  Ed.]  c.  10,  §  1),  a  partnership,  though  neither  a  ten- 
ancy in  common  nor  a  corporation,  has  some  of  the  attributes  of  both. 
The  well-established  rule  which  excludes  creditors  of  the  several  part- 
ners from  the  partnership  property  until  that  has  paid  the  debts  of  the 
partnership  is  derived  from  the  acknowledgment  that  a  partnership  is 
a  body  by  itself.  In  its  relation  to  its  creditors  it  is  placed  upon  the 
basis  of  having  its  own  creditors  and  possessing  its  own  property, 
which  it  applies  to  the  payment  of  its  debts,  and  after  this  work  is 
done  there  is  a  resolution  of  the  body  into  its  elements. 

Until  some  act  is  done  by  the  firm  to  transfer  the  joint  interest,  no 
separate  act  of  either  or  all  of  the  partners,  or  proceedings  against 
them  individually  with  reference  to  their  individual  interests,  should 
be  held  to  affect  the  title  of  the  firm,  so  as  to  preclude  a  creditor  of  the 
firm,  having  a  judgment  and  execution,  from  levying  upon  the  joint 
property.  To  hold  that  separate  transfers  of  their  individual  shares 
by  the  several  partners  can  convey  a  good  title  to  the  whole  property 
free  from  joint  debts  would  be  to  return  to  the  doctrine,  long  since 
exploded,  that  partners  hold  by  moieties  as  tenants  in  common.  In 
the  present  advanced  stage  of  the  law  upon  this  subject,  no  established 
rule  is  violated  by  holding  that  the  title  of  the  firm,  as  between  it  and 
its  creditors,  cannot  be  divested  by  the  acts  of  the  partners  severally, 
not  in  the  business  of  the  firm,  nor  by  the  separate  creditors  of  mem- 
bers of  the  firm  (further  than  such  temporary  interruption  of  the  pos- 
session as  may  be  necessary  to  enable  the  officers  of  the  law  to  make 
an  effectual  sale  of  the  interest  of  the  debtor  partner).  This  view 
does  not  recognize  any  lien  of  partnership  creditors  upon  the  firm  prop- 
erty. The  firm  have  power  to  dispose  of  it  without  regard  to  the  cred- 
itors, provided  the  disposition  be  not  fraudulent.  But  the  individual 
members  or  their  creditors  ought  not  to  have  any  such  power,  and  all 
transfers  made  by  them  for  individual  purposes  should  be  held  in- 
operative upon  the  corpus  of  the  property,  so  long  as  there  are  firm 
debts  unpaid  for  which  the  property  is  required.  As  against  firm 
creditors,  no  greater  effect  should  be  given  to  such  transfers  when 
made  by  all  the  partners  separately  than  when  made  by  a  portion  of 
them,  but  the  property  should  be  deemed  to  continue  in  the  firm  until 
its  title  has  been  divested  by  some  act  of  the  firm. 

My  conclusion  is  that,  as  between  the  firm  of  J.  C.  Smith  &  Co. 
and  its  creditors,  the  property  levied  upon  by  the  defendants  remained 
the  property  of  the  firm,  and  subject  to  levy  on  execution  against  it, 
notwithstanding  the  transfers  by  the  several  partners  of  their  respective 
individual  interests.     *     *     * 


EFFECT  OF  DEATH  OF  PABTNEE  ON  PARTNERSHIP  PEOPEETY   149 


XI.  Effect  of  Death  of  Partner  on  Partnership  Property 


JEFFEREYS  v.  SMALL. 
(In  Chancery,  before  Sir  Francis  North,  L.  K.,  1683.    1  Vern.  217.) 

Two  persons  having  jointly  stocked  a  farm,  and  occupied  it  as 
joint  tenants,  the  bill  was  to  be  relieved  against  survivorship,  one  of 
them  being  dead ;  and  though  it  was  proved  in  the  cause  that  the 
deceased  was  informed  what  the  consequence  of  law  was  in  case 
he  should  die,  and  that  he  thereupon  replied  he  was  content  the  stock 
should  survive,  yet  the  Lord  Keeper  was  clear  of  opinion  that  the 
plaintiff  ought  to  be  relieved;  and  said,  if  the  farm  had  been  taken 
jointly  by  them,  and  proved  a  good  bargain,  there  the  survivor  should 
have  had  the  benefit  of  it ;  but  as  to  a  stock  employed  in  way  of  trade, 
that  should  in  no  case  survive.  The  custom  of  merchants  as  to  bills 
of  exchange  is  now  extended  to  inland  bills,  and  the  custom  of  mer- 
chants is  extended  to  all  traders  to  exclude  survivorship ;  and  though 
it  is  common  for  traders  in  articles  of  co-partnership  to  provide  against 
survivorship,  yet  that  is  more  than  is  necessary;  and  he  said  he  took 
the  distinction  to  be,  where  two  become  joint  tenants  or  jointly  inter- 
ested in  a  thing  by  way  of  gift  or  the  like,  there  the  same  shall  be 
subject  to  all  the  consequences  of  law;  but  as  to  a  joint  undertaking 
in  the  way  of  trade  or  tlie  like,  it  is  otherwise,  and  decreed  for  the 
plaintiff  accordingly. 


ANDREWS'  HEIRS  v.  BROWN. 

(Supreme  Court  of  Alabama,  1852.    21  Ala.  437,  56  Am.  Dec.  252.) 

Bill  by  Thomas  Brown,  the  surviving  partner  of  the  firm  of  E.  L. 
Andrews  &  Co.,  against  the  representatives  and  heirs  of  E.  L.  An- 
drews and  Z.  Andrews,  the  deceased  partners,  for  the  purpose  of  ob- 
taining control  of  certain  stock  and  real  estate  standing  in  the  name 
of  the  deceased  partners  and  subjecting  it  to  the  partnership  debts. 
The  bill  alleged  that  the  property,  although  standing  in  the  names 
of  the  defendants  individually,  was  partnership  property,  and  also 
the  insolvency  of  the  firm.  The  property  had  belonged  formerly  to 
a  firm  composed  of  E.  L.  and  Z.  Andrews,  and  when  the  firm  with 
Brown  as  a  member  was  formed  the  land  w^as  carried  into  the  new 
firm  and  became  part  of  the  capital.  A  supplemental  bill  was  filed, 
stating  that  part  of  the  real  estate  had  been  purchased  by  E.  L.  An- 
drews for  the  firm  at  a  foreclosure  sale,  and  the  property  had  been 

28  For  a  discussion  of  principles,  see  Gllmore  on  Partnership,  §§  65,  66. 


150  NATURE    AND    CHARACTERISTICS 

redeemed,  and  the  money  paid  to  Campbell  &  Chandler,  attorneys  for 
the  deceased  partners,  and  prayed  that  this  be  decreed  to  stand  in 
place  of  the  land  itself.  The  chancellor  decreed  in  favor  of  the  com- 
plainant.   Defendant  brought  error. ^* 

Dargan,  C.  J.  When  a  partnership  is  dissolved  by  the  death  of 
one  or  more  of  the  partners,  the  legal  title  to  all  the  personal  property 
and  choses  in  action  belonging  to  the  firm  becomes  vested  exclusively 
in  the  survivor ;  not,  indeed,  for  his  own  peculiar  benefit,  but  for 
the  purpose  of  paying  the  debts,  and  then  dividing  the  net  balance 
amongst  those  entitled,  giving  to  the  representatives  of  the  de- 
ceased partner  the  same  interest  he  would  have  taken  had  he  been 
in  life,  and  the  firm  had  been  dissolved,  not  by  death,  but  by  mutual 
consent.  But  as  respects  real  property  the  case  is  different  at  law ; 
for  the  legal  title  descends  to  the  heir  at  law  of  the  deceased  part- 
ner, and  a  court  of  law,  looking  to  the  legal  title  alone,  cannot  regard 
or  protect  the  mere  equities  of  others.  In  a  court  of  equity,  however, 
real  estate  belonging  to  the  firm  is  considered  as  personal  property 
to  this  extent,  at  least :  that  it  is  liable  to  pay  the  debts  of  the  firm, 
and  then  to  distribution  between  the  partners  in  the  same  manner  as 
If  It  had  been  personal  instead  of  real  estate.  These  charges  upon 
the  real  estate,  being  prior  to  the  claims  of  the  representatives  of  the 
deceased  partner,  override  his  wife's  title  to  dower,  as  well  as  the 
title  of  his  heir  at  law.  The  consequence  is  that  the  heir  at  law  holds 
the  legal  title  subservient  to  or  in  trust  for  the  surviving  partner,  who 
is  charged  with  the  payment  of  the  debts.  These  principles  of  law, 
in  my  opinion,  are  so  well  settled  that  they  are  no  longer  the  subject 
of  controversy.  Story  on  Partn.  127  et  seq. ;  Coll.  on  Partn.  (Per- 
kins' Ed.)  183-185;  Pugh  v.  Currie,  5  Ala.  44G ;  Pierce  v.  Trigg,  10 
Leigh  (Va.)  406;  Delmonico  v.  Guillaume,  2  Sandf.  Ch.  (N.  Y.) 
366;  Dyer  v.  Clark,  5  Mete.  (Mass.)  562,  39  Am.  Dec.  697;  Ripley 
V.  Waterworth,  7  Ves.  425 ;    Dale  v.  Hamilton,  5  Hare,  369. 

Inasmuch  as  the  real  estate  is  considered  as  personal  for  the  pur- 
pose of  paying  the  debts  of  the  firm,  and  the  surviving  partner  is 
charged  with  the  duty  of  paying  those  debts,  it  must  of  necessity  fol- 
low that  he  has  the  right  in  equity  to  dispose  of  the  real  estate  for  this 
purpose;  for  it  would  never  do  to  charge  him  with  the  duty  of  pay- 
ing the  debt,  and  at  the  same  time  to  take  from  him  the  means  of  doing 
it.  Therefore,  although  he  cannot  by  his  deed  pass  the  legal  title 
to  the  purchaser,  which  descended  to  the  heir  of  the  deceased  partner, 
yet,  as  the  heir  holds  the  title  in  trust  to  pay  the  debts,  and  the  sur- 
vivor is  charged  with  this  duty,  his  deed  will  convey  this  equity  to  his 
purchaser,  and  through  it  he  may  call  on  the  heir  for  the  legal  title 
and  compel  him  to  convey.  See  Delmonico  v.  Guillaume  and  Dyer  v. 
Clark,  supra. 

Applying  these  principles  to  the  facts  exhibited  by  the  pleadings 
and  proof  in  the  case  before  us  (but  which  we  will  not  state  in  de- 

2*  The  statement  of  facts  Is  abridged. 


EFFECT  or  DEATH  Or  PARTNEE  ON  PARTNERSHIP  PROPERTY    151 

tail  in  this  opinion),  we  can  perceive  no  error  in  the  decree;  for  the 
proof,  we  think,  is  abundant  to  show  that,  although  the  legal  title 
to  the  lands  was  held  by  E.  L.  Andrews  alone,  nevertheless  they  be- 
longed to  the  firm  as  partnership  property,  and  were  so  treated  by  all 
the  members  of  the  firm.  They  never  did  belong  exclusively  to  E.  L. 
Andrews,  Consequently  the  claims  of  the  creditors  of  the  firm  are 
superior  to  his  widow's  right  of  dower,  as  well  as  to  the  legal  title 
of  his  heirs  at  law.  The  lands  were  purchased  with  the  funds  of  E.  L. 
&  Z.  Andrews,  who  were  then  partners,  and  stood  upon  their  books 
as  partnership  property,  and  when  the  new  firm  was  formed,  com- 
posed of  E.  L.  and  Z.  Andrews  and  Thomas  G.  Brown,  these  lands 
were  carried  into  the  new  firm  as  part  of  its  capital,  and  were  there- 
fore partnership  property. 

As  to  the  stocks  purchased  with  the  funds  of  the  new  firm,  it  is 
very  clear  that  they  also  are  subject  to  the  control  and  disposition  of 
the  surviving  partner.  Brown,  notwithstanding  they  stand  on  the 
books  of  the  bank  and  the  insurance  company  in  the  name  of  E.  L. 
Andrews  alone.  In  reference  to  the  money  received  by  Messrs.  Camp- 
bell &  Chandler,  growing  out  of  the  redemption  of  one  of  the  lots  by 
Mr.  Gliddon,  we  think  it  should  stand  in  the  place  of  the  lot  itself, 
and  consequently  subject  to  the  disposition  made  by  Brown  of  the 
lot. 

We  are  satisfied  there  is  no  error  in  the  decree,  and  it  must  be  af- 
firmed. 

I  will  observe,  in  conclusion,  that  we  do  not  intend,  by  anything 
said  in  the  foregoing  opinion,  to  hold  that  a  surviving  partner  is  au- 
thorized to  sell  real  estate  for  the  simple  purpose  of  making  distribu- 
tion amongst  the  partners  themselves  and  their  representatives.  That 
question  is  not  raised  in  the  case,  and  has  not  been  considered.  We 
only  intend  to  decide  this :  The  firm  being  insolvent,  the  surviving 
partner  may  dispose  of  the  whole  property  to  pay  the  debts,  whether 
that  property  consist  of  real  or  personal  estate. 

The  decree  is  affirmed. 


BASSETT  et  al.  v.  MILLER, 
(Supreme  Court  of  Michigan,  1878.    39  Mich.  133.) 

Campbell,  C.  J.^"  This  case  presents,  as  we  think,  but  one  import- 
ant question,  and  that  is  whether  surviving  partners  who  sell  goods 
which  belong  to  their  firm  can  recover  for  their  price  in  their  own 
names,  without  joining  the  representatives  of  the  deceased  partner. 
The  principle  is  well  settled  that  the  entire  legal  estate  vests  in  the  sur- 
vivors, and  no  one  else  can  be  regarded  as  having  any  legal  interest 
in  the  assets.  Barry  v.  Briggs,  22  Mich.  201 ;  PfefiFer  v.  Steiner,  27 
Mich.  537;  Merritt  v.  Dickey,  38  Mich.  41.    The  court  erred  in  hold- 

2  6  Part  of  the  opinion  Is  omitted. 


152  NATURE    AND    CHARACTERISTICS 

ing  that  the  survivors  could  not  sue  for  goods  sold  by  them  until  they 
had  an  assignment  or  had  formerly  organized  a  new  firm.     *     *     * 
Judgment  must  be  reversed,  with  costs,  and  a  new  trial  ordered. 


ADAIMS  V.  HACKETT. 

(Supreme  Court  of  New  Hampslaire,  1853.    27  N.  H.  2S9,  59  Am.  Dec.  376.) 

Eastman,  J.^'  As  we  understand  the  declaration  in  this  case,  it  is 
founded  upon  promises  made  to  the  plaintiff  as  surviving  partner  of 
the  firm  of  J.  G.  Bancroft  &  Co.,  and  as  surviving  partner  of  the  firm 
of  G.  A.  &  J.  Q.  Adams,  and  also  upon  promises  to  the  plaintiff  in 
his  individual  capacity.  And  the  objection  is  taken  by  the  defendant 
that  these  are  diff'erent  causes  of  action,  which  cannot  be  joined  in 
one  suit. 

We  suppose  the  objection  is,  not  that  the  causes  of  action  are  of 
a  diff'erent  nature,  and  therefore  cannot  be  joined,  but  that  they  ac- 
crue in  different  rights ;  that  is,  that  here  is  a  cause  of  action  in  favor 
of  the  firm  of  J.  G.  Bancroft  &  Co.,  and  another  in  favor  of  G.  A.  & 
J.  Q.  Adams,  and  still  another  in  favor  of  George  A.  Adams  individu- 
ally, and  that  the  three  cannot  be  united  in  one  suit. 

It  is  not  disputed  that  the  plaintiff  is  the  surviving  partner  of  the 
two  firms,  and  it  is  well  settled  that  where  a  firm  consists  of  two  per- 
sons, and  one  of  them  dies,  the  rights  of  action  which  were  vested 
in  the  firm  survive  to  the  remaining  member;  not  to  him  as  to  an  ad- 
ministrator or  executor,  representing  another  person,  but  as  the  sur- 
vivor of  the  partnership  representing  himself,  and  being  all  that  is 
left  of  the  firm.  The  cause  of  action  is  in  him ;  and  hence  it  has  been 
often  held  that,  in  an  action  at  the  suit  of  a  surviving  partner,  he  may 
include  a  count  for  a  debt  due  to  himself  in  his  own  right,  as  both 
causes  of  action  are  in  him.  Slipper  v.  Stidstone,  5  T.  R.  493 ;  French 
v.  Andrade,  6  Id.  582;  Golding  v.  Vaughan,  2  Chit.  436;  Richards 
v.  Heather,  1  Barn.  &  Aid.  29 ;   Smith  v.  Barrow,  2  T.  R.  476. 

On  the  death  of  one  of  two  or  more  joint  obligees,  promisees,  etc., 
the  action  must  be  brought  by  the  survivor,  or,  if  there  be  more  than 
one,  by  all  the  survivors.  Martin  v.  Krump,  2  Salk.  444;  Kemp  v. 
Andrews,  Carth.  170;  Wilton  v.  Hamilton,  1  Bos.  &  Pul.  445;  Cabell 
V.  Vaughan,  1  Saund.  291,  note  4.  The  remedy  at  law  survives  entire 
to  the  surviving  obligee  or  promisee,  who  receives  the  share  of  the 
deceased  in  the  avails  of  the  suit  as  trustee  to  his  personal  represen- 
tatives, and  must  account  for  it  with  them.  Martin  v.  Crompe,  1  Ld. 
Raym.  340 ;  West  v.  Skip,  1  Ves.  Sr.  242 ;  Id.  456 ;  Toller  on  Execu- 
tors, 155,  163,  444. 

As  it  is  clear,  upon  authority,  that  a  surviving  partner  may,  in  an 
action  brought  by  him  as  such  survivor,  include  in  his  declaration  a 

2«  Part  of  the  opinion  is  omitted. 


SURVIVING   PARTNER   AS   QUASI   TRUSTEE  153 

count  for  a  debt  due  to  himself  in  his  own  right,  no  reason  occurs  to 
us  why  he  may  not  also,  in  the  same  suit,  join  another  count  for  a 
debt  accruing  to  him  as  survivor  of  another  firm.  The  causes  of 
action  are  all  in  him,  and  the  principle  in  the  one  case  must  be  the 
same  as  in  the  other.  This  objection  of  the  defendant  must  therefore 
fail.     *     *     * 

Judgment  for  the  plaintiff. 


XII.  Surviving  Partner  as  Quasi  Trustee 


DEWEY  V.  CHAPIN  et  al. 

(Supreme  Judicial  Court  of  Massachusetts.     Suffolk,  1892.    156  Mass.  35,  30 

N.  E.  223.) 

Knowlton,  J.2^  The  master  found  that  the  partnership  property 
sold  by  the  defendant  Charles  E.  Chapin,  the  surviving  partner,  was 
worth,  at  the  time  of  the  sale,  $4,729,  although  it  brought  at  auction 
only  $2,571.90.  This  was  a  finding  of  fact  to  which  no  exception  was 
taken,  and  it  appears  to  have  been  well  supported  by  the  evidence. 
If  the  sale  had  been  made  in  good  faith,  and  in  the  exercise  of  a 
sound  discretion,  the  partner  making  it  would  have  been  chargeable 
only  for  the  proceeds  of  it.  But  it  was  his  duty  to  obtain  for  the 
property  all  that  he  reasonably  could  for  the  benefit  of  the  executor 
of  his  deceased  copartner,  as  well  as  for  himself ;  and,  while  he  held 
the  legal  title,  he  held  it  subject  to  a  kind  of  trust  which  equity  will 
enforce  in  favor  of  those  interested  in  it.  About  a  month  before  the 
sale  he  had  obtained  a  lease  of  the  place  where  the  property  was  bemg 
used,  which  had  previously  been  occupied  by  the  firm,  and  there  was 
no  sale  or  ofifer  of  sale  of  the  good-will  at  the  auction,  or  of  any  right 
to  remain  on  the  premises,  or  to  retain  the  plant  and  equipment  there. 
He  made  the  sale  to  his  son,  and  when  it  was  completed  entered  into 
partnership  with  him,  and  continued  to  conduct  the  same  business, 
using  the  same  plant  and  equipment,  at  the  same  place.  These  facts 
warranted  the  finding  of  the  master  that  the  defendant  Charles  E. 
Chapin  did  not  exercise  good  faith  and  sound  discretion  in  endeavor- 
ing to  obtain  for  the  partnership  property  as  much  as  he  reasonably 
could,  and  he  is  therefore  chargeable  with  what  he  ought  to  have  got 
for  it. 

The  defendant  Charles  T.  Chapin  was  not  a  copartner  in  the  orig- 
inal firm,  and  is  not  accountable  for  any  part  of  the  assets  of  it,  unless 
he   became   so   through   his   purchase   at   the    auction    sale.     The 

«T  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  67. 
28  The  statement  of  facts  is  omitted. 


154  NATURE    AND    CHARACTERISTICS 

master  finds  that  "neither  fraud  nor  unfair  dealing  is  imputable 
to  him  in  that  purchase"  and  that  "the  title  passed  to  him ;"  but  he 
also  finds  "that  his  relations  both  to  the  deceased  and  the  surviving 
partner  subject  him  to  any  equity  enforceable  against  the  latter,  and 
prevent  his  claiming  to  hold  the  plaintiff's  property  as  a  purchaser 
without  notice  for  the  price  it  was  sold  to  him."  This  last  finding 
does  not  enable  the  plaintiff  or  the  other  defendant  to  recover  of  him 
on  account  of  his  purchase  anything  more  than  the  purchase  price, 
and  does  not  put  him  in  the  position  of  the  surviving  partner,  who  is 
accountable  for  the  partnership  assets  at  the  price  which  he  ought 
to  have  obtained  for  them.  The  allegations  of  the  bill  put  his  lia- 
bility solely  on  theground  of  his  purchase.  The  plaintiff,  in  his  case 
against  Charles  E.  Chapin,  seeks  to  hold  him  on  the  ground  that  by 
the  sale  he  made  a  final  disposition  of  the  property,  and  so  made  him- 
self accountable  for  its  value.  The  claim  against  him  is  inconsistent 
with  an  attempt  to  pursue  the  assets  beyond  him,  and  to  recover  them 
from  Charles  T.  Chapin.  If  the  plaintiff  charged  an  improper  and 
fraudulent  sale  by  Charles  E.  Chapin,  and  asked  on  that  account  for 
the  appointment  of  a  receiver,  and  showed  that  Charles  T.  Chapin 
bought  with  notice  of  the  plaintiff's  equities,  and  that  the  sale  could 
not  properly  be  made,  it  might  well  be  that  a  receiver  could  be  au- 
thorized to  take  the  property  out  of  Charles  T.  Chapin's  hands,  or 
that  he  could  be  compelled  to  pay  over  the  value  of  it  if  he  had  sold  it 
to  an  innocent  purchaser  or  otherwise  disposed  of  it. 

But  under  this  bill  we  are  of  opinion  that  no  recovery  can  be  had 
against  him,  and  that  Charles  E.  Chapin  is  liable  to  the  plaintiff  for 
the  whole  amount  found  due  him  by  the  master.    Decree  accordingly. 


XIII.  Agreement  of  Partners  Controlling  Property  After  Death 

of  Partner  ^" 


In  re  SIMPSON. 

(Court  of  Appeal  In  Chancery,  1874.    9  L.  R.  Ch.  App.  572.) 

Walter  Simpson,  Charles  John  Simpson,  Frederic  Simpson,  and 
Arthur  Simpson  carried  on  in  partnership  at  Preston  the  business  of 
cotton-spinners,  under  the  provisions  of  articles  of  partnership,  dated 
the  2d  of  January,  1871.  By  these  articles  it  was  provided  that  the 
partnership  should  continue  for  fourteen  years  from  the  1st  of  July, 
1867,  and  each  partner  was  to  be  entitled  to  an  equal  fourth  part  of 

28  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  68. 


PEOPEETY  ATTEE  DEATH  OF  PAETNEB 


155 


the.  profits,  and  half-yearly  general  accounts  were  to  be  taken.  It 
was  further  provided  that,  "in  case  of  the  death  of  either  or  any  of 
them  the  said  C.  J.  Simpson,  A.  Simpson,  W.  Simpson,  and  F.  Simp- 
son, such  event  shall  not  dissolve  the  partnership,  but  the  survivors  or 
survivor  of  them  shall  carry  on  the  business,  and  the  share  of  either 
or  any  of  them  so  dying  shall  be  ascertained  at  the  succeeding  stock- 
taking after  the  death  of  either  of  them,  and  the  balance  then  found  to 
be  due  to  either  or  any  of  them  the  said  C.  J.  Simpson,  A.  Simpson, 
W.  Simpson,  and  F.  Simpson,  so  dying  as  aforesaid,  shall  (subject  as 
hereinafter  mentioned)  as  to  one  half  part  thereof  (except  as  to  the 
sum  of  £200)  remain  in  the  hands  of  the  survivors  or  survivor  of  them 
the  said  C.  J.  Simpson,  A.  Simpson,  W.  Simpson,  and  F.  Simpson,  for 
three  years  from  the  decease  of  either  of  them,  and  as  to  the  other  half 
part  thereof  (except  as  to  the  said  sum  of  £200)  remain  in  the  hands 
of  the  survivors  or  survivor  of  them  the  said  C.  J.  Simpson,  A.  Simp- 
son, W.  Simpson,  and  F.  Simpson,  for  five  years  from  the  decease  of 
either  of  them,  and  the  whole  of  the  said  balance  (except  as  to  the 
said  sum  of  £200)  shall  be  secured  to  the  representatives  of  either 
or  any  of  them  the  said  C.  J.  Simpson,  A.  Simpson,  W.  Simpson,  and 
F.  Simpson,  so  dying  as  aforesaid,  by  the  promissory  notes  of  the 
survivors  or  survivor  of  them  the  said  C.  J.  Simpson,  A.  Simpson, 
W.  Simpson,  and  F.  Simpson,  such  notes  bearing  interest  at  the  rate 
of  71/2  per  cent,  per  annum,  payable  and  to  be  paid  to  such  representa- 
tives quarterly,  and  the  said  sum  of  £200  shall  be  paid  to  the  repre- 
sentatives of  each  of  them  the  said  C.  J.  Simpson,  A.  Simpson,  W. 
Simpson,  and  F.  Simpson,  dying  as  aforesaid,  within  one  calendar 
month  after  the  death  of  either  of  them." 

The  capital  of  the  business  consisted  of  money,  machinery,  and 
stock.  On  the  27th  of  September,  1871,  Arthur  Simpson  died,  and 
the  business  was  thenceforth  carried  on  by  the  three  survivors.  On 
the  15th  of  January,  1872,  C.  J.  Simpson  died,  and  thenceforth  the 
business  was  carried  on  by  the  two  survivors.  No  half-yearly  ac- 
counts had  been  taken,  and  no  steps  were  taken  to  ascertain  the  shares 
of  the  deceased  partners.  No  promissory  note  was  given  by  the  sur- 
vivors to  the  representatives  of  either  of  the  deceased  partners,  nor 
was  the  £200  in  either  case  paid  within  the  period  fixed  by  the  arti- 
cles. Small  sums  were,  however,  from  time  to  time  paid  by  the  sur- 
vivors to  the  widow  of  each  of  the  deceased  partners,  amounting  in 
the  case  of  A.  Simpson's  widow  to  £248,  and  in  the  case  of  C.  J. 
Simpson's  widow  to  £60. 

On  the  19th  of  December,  1872,  the  two  survivors,  W.  Simpson  and 
F.  Simpson,  filed  a  liquidation  petition,  under  which  a  trustee  was 
afterwards  appointed.  At  the  commencement  of  the  liquidation  the 
debts  of  the  firm  amounted  to  £43,627,  of  which  £23,873  consisted 
of  debts  which  had  been  contracted  when  all  the  four  partners  were 
living.     The  creditors  of  the  four  original  partners  claimed  to  have 


156  NATURE    AND    CHARACTERISTICS 

the  machinery,  or  so  much  thereof  as  could  be  distinguished  as  having 
belonged  to  the  partnership  of  the  four,  applied  in  payment  of  their 
debts,  in  priority  to  the  creditors  of  the  three  and  of  the  two.  This 
claim  was  disputed  by  the  creditors  of  the  three  and  the  two,  and  a 
special  case  was  stated  for  the  purpose  of  having  this  question  de- 
termined. 

The  judge  of  the  county  court  of  Manchester  decided  that  the  cred- 
itors of  the  four  were  entitled  to  the  priority  which  they  claimed ;  and 
he  directed  an  inquiry  to  ascertain  what  part  of  the  machinery  could, 
at  the  date  of  the  liquidation  petition,  be  distinguished  as  having  be- 
longed to  the  four  partners. 

The  creditors  of  the  two  surviving  partners  appealed,  and  the  Chief 
Judge,  Bacon,  decided  that  the  creditors  of  the  four  partners  had  no 
priority.    The  creditors  of  the  four  original  partners  appealed. 

Sir  G.  Mellish,  L.  J.^°  *  *  *  The  question  is  really  whether, 
according  to  the  true  construction  of  the  articles  of  partnership,  the 
interest  of  the  deceased  in  the  assets  is  not  to  pass  immediately  on  the 
death  of  one  of  the  partners.  I  am  of  opinion  that  it  is.  The  articles 
say,  that  in  case  of  the  death  of  any  of  the  partners,  such  event  shall 
not  dissolve  the  partnership ;  that  is  to  say,  the  survivors  are  to  con- 
tinue to  be  partners  inter  se.  It  clearly  does  not  mean  that  the  exec- 
utors are  to  be  partners,  but  that  the  survivors  shall  continue  to  be 
partners,  and  may  deal  with  the  assets  in  any  way  they  please — not 
for  the  purpose  of  winding  up,  as  they  must  have  done  in  the  ordinary 
case — but  they  may  go  on  dealing  with  the  assets  for  the  purpose  of 
the  continuing  business.  And  the  share  of  the  partner  dying  is  to  be 
ascertained  at  the  succeeding  stock-taking  after  the  death,  and  the 
balance  then  found  to  be  due  is  to  be  paid  in  a  particular  way.  That 
clearly  shows  that  what  is  meant  by  "the  share"  is  the  sum  to  be  paid 
to  the  executors  in  respect  of  the  share  of  the  deceased.  The  con- 
struction seems  to  me  to  be  made  still  more  clear  by  the  subsequent 
part  — that  £200,  part  of  the  purchase-money,  is  to  be  paid  one  month 
after  the  decease,  whether  the  stock-taking  is  made  or  not,  I  am  of 
opinion  that  the  whole  interest  in  the  assets  passed  immediately  on  the 
death  of  one  partner  to  the  survivors,  and  the  right  of  the  executors 
was  to  have  the  value  ascertained  in  a  particular  way,  and  then  to  re- 
ceive the  amount  in  a  particular  way.  I  am  also  of  opinion  that  the 
ascertaining  of  the  value  was  not  a  condition  precedent  to  the  passing 
of  the  property  in  the  assets,  and  that  the  assets  went  to  the  surviving 
partners. 

The  appeal  must  be  dismissed. 

80  Part  of  tbe  opinion  is  omitted  and  the  statement  of  facts  abridged. 


PARTNERSHIP  LIABILITY  157 


NATURE,  EXTENT.  AND  DURATION  OF  PARTNERSHIP 

LIABILITY 

I.  Nature  of  Liability  in  Contract  * 


MASON  V.  ELDRED  et  a!. 
(Supreme  Court  of  the  United  States,  1867.    6  Wall.  231,  18  L.  Ed.  783.) 

On  certificate  of  division  between  the  judges  of  the  Circuit  Court 
of  Wisconsin.  The  plaintiff,  Mason,  sued  in  the  Circuit  Court  for 
Wisconsin  Anson  Eldred,  Elisha  Eldred,  and  one  Balcom,  trading 
as  partners,  upon  a  partnership  note  of  theirs.  Process  was  served 
on  Anson  Eldred  alone,  who  alone  appeared  and  pleaded  non  as- 
sumpsit. On  the  trial,  the  note  being  put  in  evidence  by  the  plaintiff, 
Eldred  offered  the  record  of  a  judgment  in  one  of  the  state  courts  of 
Michigan,  showing  that  Mason  had  already  brought  suit  in  that  court 
on  the  same  note  against  the  partnership,  where,  though  Elisha  El- 
dred was  alone  served  and  alone  appeared,  judgment  in  form  had  been 
passed  against  all  the  defendants  for  the  full  amount  due  upon  the 
note.  The  evidence  being  objected  to  by  the  plaintiff,  because  not 
admissible  under  the  pleadings,  and  because  it  appeared  on  the  face 
of  the  record  that  there  was  no  judgment  against  either  of  the  de- 
fendants named,  except  Elisha  Eldred,  who  alone,  as  appeared  also, 
was  served  or  appeared,  and  because  it  was  insufficient  to  bar  the 
plaintiff's  action,  the  question  whether  it  was  evidence  under  the  issue 
in  bar  of,  and  to  defeat,  recovery  against  Anson  Eldred,  was  certified 
to  this  court  for  decision  as  one  on  which  the  judges  of  the  Circuit 
Court  were  opposed. 

Field,  J.'  The  counsel  of  the  plaintiff  suggests  that  the  question 
presented  by  the  certificate  of  the  judges  of  the  Circuit  Court  is  di- 
visible into  two  parts:  (1)  Whether  the  record  of  the  judgment  re- 
covered in  Michigan  was  admissible  under  the  pleadings;  and  (2) 
whether,  if  admissible,  the  judgment  constituted  a  bar  to  the  present 
action.  We  think,  however,  that  the  admissibility  of  the  record  de- 
pends upon  the  operation  of  the  judgment. 

If  the  note  in  suit  was  merged  in  the  judgment,  then  the  judgment 
IS  a  bar  to  the  action,  and  an  exemplification  of  its  record  is  admissible; 
tor  it  has  long  been  settled  that  under  the  pleas  of  the  general  issue 
in  assumpsit  evidence  may  be  received  to  show,  not  merely  that  the 
alleged  cause  of  action  never  existed,  but  also  to  show  that  it  did  not 
subsist  at  the  commencement  of  the  suit.    Young  v.  Black,  7  Cranch, 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  69,  70. 
*  Part  of  the  opinion  is  omitted  and  the  stateniout  of  facts  is  abridged. 


158  PARTNERSHIP  LIABILITY 

565,  3  L.  Ed.  440;  Young  v.  Rummcll,  2  Hill  (N.  Y.)  480,  38  Am. 
Dec.  594.  On  the  other  hand,  if  the  note  is  not  thus  merged,  it  still 
forms  a  subsisting  cause  of  action,  and  the  judgment  is  immaterial 
and  irrelevant. 

The  question,  then,  for  determination,  relates  to  the  operation  of 
the  judgment  upon  the  note  in  suit. 

The  plaintiff  contends  that  a  copartnership  note  is  the  several  ob- 
ligation of  each  copartner,  as  well  as  the  joint  obligation  of  all,  and 
that  a  judgment  recovered  upon  the  note  against  one  copartner  is  not 
a  bar  to  a  suit  upon  the  same  note  against  another  copartner ;  and  the 
latter  position  is  insisted  upon  as  the  rule  of  the  common  law,  inde- 
pendent of  the  joint  debtor  act  of  Michigan. 

It  is  true  that  each  copartner  is  bound  for  the  entire  amount  due  on 
copartnership  contracts,  and  that  this  obligation  is  so  far  several  that, 
if  he  is  sued  alone  and  does  not  plead  the  nonjoinder  of  his  copartners. 
a  recovery  may  be  had  against  him  for  the  whole  amount  due  upon  the 
contract  and  a  joint  judgment  against  the  copartners  may  be  enforced 
against  the  property  of  each.  But  this  is  a  different  thing  from  the 
liability  which  arises  from  a  joint  and  several  contract.  There  the 
contract  contains  distinct  engagements,  that  of  each  contractor  in- 
dividually, and  that  of  all  jointly,  and  different  remedies  may  be  pur- 
sued upon  each.  The  contractors  may  be  sued  separately  on  their 
several  engagements,  or  together  on  their  joint  undertaking.  But  in 
copartnerships  there  is  no  such  several  liability  of  the  copartners.  The 
copartnerships  are  formed  for  joint  purposes.  The  members  under- 
take joint  enterprises,  they  assume  joint  risks,  and  they  incur  in  all 
cases  joint  liabilities.  In  all  copartnership  transactions  this  common 
risk  and  liability  exists.  Therefore  it  is  that  in  suits  upon  these 
transactions  all  the  copartners  must  be  brought  in,  except  when  there 
is  some  ground  of  personal  release  from  liability,  as  infancy  or  a  dis- 
charge in  bankruptcy;  and,  if  not  brought  in,  the  omission  may  be 
pleaded  in  abatement.  The  plea  in  abatement  avers  that  the  alleged 
promises  upon  which  the  action  is  brought  were  made  jointly  with 
another,  and  not  with  the  defendant  alone,  a  plea  which  would  be 
without  meaning,  if  the  copartnership  contract  was  the  several  con- 
tract of  each  copartner. 

The  language  of  Lord  Mansfield  in  giving  the  judgment  of  the 
King's  Bench  in  Rice  v.  Shute,  Burr.  2511,  "that  all  contracts  with 
partners  are  joint  and  several,  and  every  partner  is  liable  to  pay  the 
whole,"  must  be  read  in  connection  with  the  facts  of  the  case,  and, 
when  thus  read,  does  not  warrant  the  conclusion  that  the  court  in- 
tended to  hold  a  copartnership  contract  the  several  contract  of  each 
copartner,  as  well  as  the  joint  contract  of  all  the  copartners,  in  the 
sense  in  which  these  terms  are  understood  by  the  plaintiff's  counsel, 
but  only  that  the  obligation  of  each  copartner  was  so  far  several  that 
in  a  suit  against  him  judgment  would  pass  for  the  whole  demand,  if 
the  nonjoinder  of  his  copartners  was  not  pleaded  in  abatement. 

The  plea  itself,  which,  as  the  court  decided,  must  be  interposed  in 


NATURE    OF   LIABILITY    IN    CONTEACT  lJj9 

such  cases,  is  inconsistent  with  the  hypothesis  of  a  several  liabihty. 

For  the  support  of  the  second  position,  that  a  judgment  against  one 
copartner  on  a  copartnership  note  docs  not  constitute  a  bar  to  a  suit 
upon  the  same  note  against  another  copartner,  the  plaintiff  rehes  upon 
the  case  of  Sheehy  v.  MandeviUe  &  Jamcsson,  decided  by  this  court, 
and  reported  in  6  Cranch,  254,  3  L.  Ed.  215.  In  that  case  the  plaintiff 
brought  a  suit  upon  a  promissory  note  given  by  Jamesson  for  a  co- 
partnership debt  of  himself  and  MandeviUe.  A  previous  suit  had  been 
brought  upon  the  same  note  against  Jamesson  alone,  and  judgment 
recovered.  To  the  second  suit  against  the  two  copartners  the  judg- 
ment in  the  first  action  was  pleaded  by  the  defendant  MandeviUe,  and 
the  court  held  that  it  constituted  no  bar  to  the  second  action,  and  sus- 
tained a  demurrer  to  the  plea. 

The  decision  in  this  case  has  never  received  the  entire  approbation 
of  the  profession,  and  its  correctness  has  been  doubted  and  its  au- 
thority disregarded  in  numerous  instances  by  the  highest  tribunals  of 
different  states.  It  was  elaborately  reviewed  by  the  Supreme  Court 
of  New  York  in  the  case  of  Robertson  v.  Smith,  18  Johns.  459,  9  Am. 
Dec.  227,  where  its  reasoning  was  declared  unsatisfactory,  and  a 
judgment  rendered  in  direct  conflict  with  its  adjudication. 

In  the  Supreme  Court  of  Massachusetts  a  ruling  similar  to  that  of 
Robertson  v.  Smith  was  made.  Ward  v.  Johnson,  13  ]Mass.  148.  In 
Wann  v.  McNulty,  2  Oilman,  359,  43  Am.  Dec.  58,  the  Supreme 
Court  of  Illinois  commented  upon  the  case  of  Sheehy  v.  MandeviUe 
and  declined  to  follow  it  as  authority.  The  court  observed  that,  not- 
withstanding the  respect  which  it  felt  for  the  opinions  of  the  Supreme 
Court  of  the  United  States,  it  was  well  satisfied  that  the  rule  adopted 
by  the  several  state  courts — referring  to  those  of  New  York,  Mas- 
sachusetts, Maryland,  and  Indiana — was  more  consistent  with  the 
principles  of  law  and  was  supported  by  better  reasons. 

In  Smith  v.  Black,  9  Serg.  &  R.  143,  11  Am.  Dec.  686,  the  Supreme 
Court  of  Pennsylvania  held  that  a  judgment  recovered  against  one  of 
two  partners  was  a  bar  to.  a  subsequent  suit  against  both,  though  the 
new  defendant  was  a  dormant  partner  at  the  time  of  the  contract  and 
was  not  discovered  until  after  the  judgment.  "No  principle,"  said  the 
court,  "is  better  settled  than  that  a  judgment  once  rendered  absorbs 
and  merges  the  whole  cause  of  action,  and  that  neither  the  matter  nor 
the  parties  can  be  severed,  unless,  indeed,  where  the  cause  of  action 
is  joint  and  several,  which,  certainly,  actions  against  partners  are  not." 
In  its  opinion  the  court  referred  to  Sheehy  v.  MandeviUe,  and  remark- 
ed that  the  decision  in  that  case,  however  much  entitled  to  respect  from 
the  character  of  the  judges  who  composed  the  Supreme  Court  of  the 
United  States,  was  not  of  binding  authority,  and  it  was  disregarded. 

In  King  v.  Hoare,  13  Mees.  &  W.  495,  the  question  whether  a  judg- 
ment recovered  against  one  of  two  joint  contractors  was  a  bar  to  an 
action  against  the  other  was  presented  to  the  Court  of  Exchequer  and 
was  elaborately  considered.     The  principal  authorities  were  reviewed. 


160  PARTNERSHIP  LIABILITY 

and  the  conclusion  reached  that  by  the  judgment  recovered  the  orig- 
inal demand  had  passed  in  rem  judicatam  and  could  not  be  made  the 
subject  of  another  action.  In  the  course  of  the  argument  the  case  of 
Sheehy  v.  Mandeville  was  referred  to  as  opposed  to  the  conclusion 
reached,  and  the  court  observed  that  it  had  the  greatest  respect  for  any 
decision  of  Chief  Justice  Marshall,  but  that  the  reasoning  attributed 
to  him  in  the  report  of  that  case  was  not  satisfactory.  Mr.  Justice 
Story,  in  Trafton  v.  United  States,  3  Story,  651,  Fed.  Cas.  No.  14,135, 
refers  to  this  case  in  the  Exchequer,  and  to  that  of  Sheehy  v.  Mande- 
ville, and  observes  that  in  the  first  case  the  Court  of  Exchequer  pro- 
nounced what  seemed  to  him  a  very  sound  and  satisfactory  judgment, 
and  as  to  the  decision  in  the  latter  case  that  he  had  for  years  enter- 
tained great  doubts  of  its  propriety. 

The  general  doctrine  maintained  in  England  and  the  United  States 
may  be  briefly  stated.  A  judgment  against  one  upon  a  joint  contract 
of  several  persons  bars  an  action  against  the  others,  though  the  latter 
were  dormant  partners  of  the  defendant  in  the  original  action,  and  this 
fact  was  unknown  to  the  plaintiff  when  that  action  was  commenced. 
When  the  contract  is  joint,  and  not  joint  and  several,  the  entire  cause 
of  action  is  merged  in  the  judgment.  The  joint  liability  of  the  par- 
ties not  sued  with  those  against  whom  the  judgment  is  recovered  being 
"extinguished,  their  entire  liability  is  gone.  They  cannot  be  sued  sepa- 
rately, for  they  have  incurred  no  several  obligation.  They  cannot  be 
sued  jointly  with  the  others,  because  judgment  has  been  already  re- 
covered against  the  latter,  who  would  otherwise  be  subjected  to  two 
suits  for  the  same  cause. 

If,  therefore,  the  common-law  rule  were  to  govern  the  decision  of 
this  case,  we  should  feel  obliged,  notwithstanding  Sheehy  v.  Mande- 
ville, to  hold  that  the  promissory  note  was  merged  in  the  judgment  of 
the  court  of  Michigan,  and  that  the  judgment  would  be  a  bar  to  the 
present  action.  But  by  a  statute  of  that  state  (3  Comp.  Laws  Mich. 
1857,  p.  1219,  c.  133),  the  rule  of  the  common  law  is  changed  with 
respect  to  judgments  upon  demands  of  joint  debtors,  when  some  only 
of  the  parties  are  served  with  process.  The  statute  enacts  that  "in 
actions  against  two  or  more  persons  jointly  indebted  upon  any  joint 
obligation,  contract,  or  Hability,  if  the  process  against  all  of  the  de- 
fendants shall  have  been  duly  served  upon  either  of  them,  the  defend- 
ant so  served  shall  answer  to  the  plaintiff,  and  in  such  case  the  judg- 
ment, if  rendered  in  favor  of  the  plaintiff,  shall  be  against  all  the 
defendants  in  the  same  manner  as  if  all  had  been  served  with  process," 
and  that  "such  judgment  shall  be  conclusive  evidence  of  the  liabilities 
of  the  defendant  who  was  served  with  process  in  the  suit,  or  who  ap- 
peared therein;  but  against  every  other  defendant  it  shall  be  evidence 
only  of  the  extent  of  the  plaintiff's  demand,  after  the  liabihty  of  such 
defendant  shall  have  been  established  by  other  evidence." 

Judgments  in  cases  of  this  kind  against  the  parties  not  served  with 
process,  or  who  do  not  appear  therein,  have  no  binding  force  upon 
them  personally.     The  principle  is  as  old  as  the  law,  and  is  of  uni- 


PARTNERSHIP   LIABILITY    AND   JOINT   LIABILITY  161 

versal  justice,  that  no  one  shall  be  personally  bound  until  he  has  had 
his  day  in  court,  which  means  until  citation  is  issued  to  him,  and  op- 
portunity to  be  heard  is  afforded.  D'Arcy  v,  Ketchum,  1  How.  l(Jo, 
13  L.  Ed.  G18,  Nor  is  the  demand  against  the  parties  not  sued  merged 
in  the  judgment  against  the  party  brought  into  court.  The  statute 
declares  what  the  effect  of  the  judgment  against  him  shall  be  with 
respect  to  them.  It  shall  only  be  evidence  of  the  extent  of  the  plain- 
tiff's demand  after  their  liability  is  by  other  evidence  established.  It 
is  entirely  within  the  power  of  the  state  to  limit  the  operation  of  the 
judgment  thus  recovered.  The  state  can  as  well  modify  the  conse- 
quences of  a  judgment  in  respect  to  its  effect  as  a  merger  and  ex- 
tinguishment of  the  original  demand  as  it  can  modify  the  operation  of 
the  judgment  in  any  other  particular, 

A  similar  statute  exists  in  the  state  of  New  York,  and  the  highest 
tribunals  of  New  York  and  Michigan,  in  construing  these  statutes, 
have  held,  notwithstanding  the  special  proceedings  which  they  au- 
thorize against  the  parties  not  served  to  bring  them  afterward  before 
the  court,  if  found  within  the  state,  that  such  parties  may  be  sued  upon 
the  original  demand.     *     *     * 

Following  these  authorities,  and  giving  the  judgment  recovered  in 
Michigan  the  same  eft"ect  and  operation  that  it  would  have  in  that 
state,  we  answer  the  question  presented  in  the  certificate  that  the  ex- 
emplification of  the  record  of  the  judgment  recovered  against  the  de- 
fendant Elisha  Eldred,  offered  by  the  defendant  Anson  Eldred,  is 
not  admissible  in  evidence  in  bar  of,  and  to  defeat,  a  recovery  against 
the  latter. 


II.  Partnership  Liability  and  Joint  Liability  ■ 


WHELAN  V.  SHAIN  et  al. 
(Supreme  Court  of  California,  1S96.    115  Cal.  326,  47  Pac.  57.) 

Action  by  R.  I.  Whelan,  sheriff,  to  determine  the  rights  of  Joseph 
E.  Shain  and  J.  S.  Reid  as  claimants  of  a  fund  arising  from  execution 
sale.  From  a  judgment  in  favor  of  the  defendant  Reid,  the  defend- 
ant Shain  appeals. 

BiiLCHER,  C.  On  January  5,  1895,  the  defendant  Joseph  E.  Shain 
commenced  an  action  against  William  Binz  and  L.  Martella  upon  their 
joint  promissory  note,  signed:  "Wm.  Binz.  L.  Martella" — and  caused 
to  be  attached  certain  personal  property  belonging  to  a  copartnership 
of  which  they  were  the  only  members.  On  January  16,  1895,  judg- 
ment was  entered  in  the  action  that  lie  "have  and  recover  from  L. 

«  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  Ti. 
Gilm.Pabt. — 11 


162  PARTNERSHIP  LIABILITY 

Martella  and  William  Binz,  defendants,"  the  sum  of  $1,410.60,  as 
prayed  for.  On  January  8,  1895,  the  defendant  J.  S.  Reid  commenced 
an  action  against  the  same  defendants  as  copartners,  doing  business 
under  the  firm  name  of  Binz  &  Martella,  upon  certain  partnership 
obHgations,  and  caused  to  be  attached  the  same  property  that  had 
been  attached  by  Shain.  On  January  22,  1895,  judgment  was  entered 
that  he  "have  and  recover  from  William  Binz  and  Lawrence  Martella, 
copartners,"  the  sum  of  $986.48,  as  prayed  for.  Under  executions 
issued  on  both  of  the  said  judgments  the  plaintiff,  Whelan,  as  sheriff, 
sold  the  said  attached  property  for  the  sum  of  $1,200,  and,  after  de- 
ducting his  proper  fees  and  charges,  there  was  left  in  his  hands  the 
sum  of  $1,059.  Shain  and  Reid  each  claimed  and  demanded  of  the 
plaintiff  that  the  proceeds  of  the  said  sale  be  applied  in  satisfaction  of 
his  judgment,  and  the  plaintiff,  being  uncertain  as  to  how  the  money 
should  be  applied,  commenced  this  action,  setting  forth  the  facts,  and 
asking  that  the  defendants  be  required  to  interplead  and  set  up  their 
respective  rights  to  the  money  in  his  possession,  and  that  the  matter 
be  determined  by  the  court.  And  subsequently,  with  the  consent  of 
the  parties  and  under  an  order  of  court,  plaintiff  paid  the  money  into 
court.  The  defendants  answered  the  complaint,  each  setting  up  his 
claim  and  right  to  the  money  as  against  his  codefendant.  Upon  the 
issues  thus  framed  the  case  was  tried,  it  being  admitted,  during  the 
trial,  that  the  property  sold  was  the  partnership  property  of  Binz  & 
IMartella.  The  court  found  the  facts  and  gave  judgment  in  favor  of 
defendant  Reid,  from  which  judgment  and  an  order  denying  his  mo- 
tion for  a  new  trial  defendant  Shain  appeals. 

The  law  is  well  settled  in  this  state  that  partnership  property  must 
first  be  applied  to  the  payment  of  partnership  debts.  "The  debts  of 
a  partnership  must  be  discharged  from  the  joint  property  before  any 
portion  of  it  can  be  applied  to  the  individual  debts  of  the  partners." 
Chase  v.  Steel,  9  Cal.  64.  "The  fact  that  an  individual  creditor  ob- 
tains judgment,  issues  execution,  and  levies  on  firm  property,  gives 
him  no  right  to  the  property  as  against  firm  creditors  who  have  not 
obtained  judgment."  Conroy  v.  Woods,  13  Cal.  626,  73  Am.  Dec. 
605.  "It  has  been  repeatedly  decided  by  this  court  that  the  creditors 
of  a  partnership  are  entitled  to  a  preference  over  the  creditors  of  the 
individual  partners  in  the  payment  of  their  debts  out  of  the  partner- 
ship property,  or  moneys  arising  therefrom,  without  regard  to  the 
priority  of  attachment  liens."  Bullock  v.  Hubbard,  23  Cal.  501,  83 
Am.  Dec.  130.  And  see,  also,  Jones  v.  Parsons,  25  Cal.  100;  Robin- 
son V.  Tevis,  38  Cal.  611;  California  Furniture  Co.  v.  Halsey,  54  Cal. 
315,  and  Commercial  Bank  v.  Mitchell,  58  Cal.  42.  In  his  answer 
Shain  alleged,  on  his  information  and  belief,  in  substance,  that  the  note 
on  which  he  obtained  judgment  was  executed  by  Binz  &  Martella  as 
copartners,  and  was  a  partnership  contract  and  obligation,  and  that 
the  money  received  thereon  from  the  payee  was  invested  and  used 
in  and  about  the  partnership  business,  and  in  furtherance  of  its  ob- 
jects.   The  court,  however,  found  against  him  on  this  issue,  to  the  effect 


SEVERABLE   CHARACTER   OF   JOINT   OBLIGATIONS  103 

that  the  said  note  was  not  executed  by  Binz  &  Martella  as  copartners 
and  was  not  a  partnership  obligation,  and  that  the  money  obtained 
thereon  was  not  invested  or  used  in  or  about  the  said  partnership  busi- 
ness, or  in  furtherance  of  its  objects,  "but  that  the  obHgation  to  pay 
said  sum  was  the  obligation  of  William.  Binz  and  L.  Martella  as  in- 
dividuals, and  not  otherwise."  There  was  evidence  tending  to  sup- 
port this  finding;  but,  if  it  were  otherwise,  under  the  law  laid  down 
in  Bank  v.  Mitchell,  supra,  the  result  would  not  be  changed.  The 
court  below  was  right,  therefore,  in  adjudging  that  respondent  Reid 
was  entitled  to  have  the  said  money  first  applied  to  the  payment  of 
his  judgment.  The  judgment  and  order  appealed  from  should  be 
affirmed.* 


III.  Quasi  Severable  Character  of  Joint  Obligations  in  Equity 


THORPE  V.  JACKSON. 

(Court  of  Exchequer,  1837.    2  Y.  &  C.  553.) 

Alderson,  B."  This  was  a  demurrer  to  the  plaintiff's  bill  on  two 
grounds:    First,  for  want  of  equity;   secondly,  for  want  of  parties. 

The  first  is  the  only  material  question.  The  bill  is  filed  by  the  pub- 
lic officer  of  the  Northern  &  Central  Bank  of  England  against  four 
defendants,  viz.,  Thomas  Jackson  and  Luke  Trotter,  the  executors  of 
Edmund  Hamer,  deceased,  and  James  Lomax  and  Patrick  Magee, 
two  of  the  surviving  partners  of  the  said  Edmund  Hamer.  The  facts 
stated  in  the  bill  are  that  Hamer,  Lomax,  and  Magee,  together  with 
one  William  Dakin,  who  is  stated  since  to  have  become  wholly  in- 
solvent, opened  a  banking  account  jointly  with  the  bank,  paid  in  mon- 
eys from  time  to  time,  and  received  advances;  that  at  the  time  of 
Hamer's  death  they  were  indebted  to  the  Northern  &  Central  Bank 
in  a  considerable  sum  on  their  joint  banking  account;  and  that  Hamer 
died,  leaving  Jackson  and  Trotter  his  executors,  who  were  possessed 
of  assets  sufficient  for  the  payment  of  this  debt  after  discharging  all 
their  testator's  separate  debts.  The  bill  prays  an  account  against  the 
defendants,  and  that  the  executors  of  Plamer  may  pay  the  same,  when 
ascertained,  out  of  the  assets  in  their  hands.  To  this  bill  there  is  a 
demurrer  for  want  of  equity,  on  the  ground  that  this  debt  survived 
at  law,  and  that  there  is  no  claim  in  equity  against  the  representatives 
of  the  deceased  party. 

*  Contra:   Citizens'  Bank  of  Perry  v.  Williams,  128  N.  Y.  77,  28  N.  E.  33, 
26  Am.  St.  Rep.  454  (1891) ;   In  re  Vetterlein  (D.  C.)  44  Fed.  57  (1800). 
B  For  a  discussion  of  principles,  see  Gilmore  on  Tartuersbip,  §  72. 
«  Statement  of  facts  is  omitted. 


164  PARTNERSHIP  LIABILITY 

After  looking  through  all  the  cases  referred  to  in  the  argument, 
I  have  come  to  a  different  conclusion,  and  think  that,  as  to  this  point, 
the  demurrer  must  be  overruled.  I  take  the  rule  to  be  as  laid  down 
by  Lord  Eldon  in  Ex  parte  Kendall,  17  Ves.  525,  namely:  "That  where 
a  man  has  chosen  to  take  the  joint  contract  of  several,  though  at  law 
his  security  is  wearing  out  as  each  of  his  debtors  dies,  yet  it  is  fit  that 
the  creditor,  whose  debt  remains  at  law  only  against  the  survivors, 
should  resort  to  the  assets  of  a  deceased  debtor;  and  a  court  of  equity 
will,  under  certain  modifications,  constitute  that  demand."  Now,  in 
this  proposition,  I  find  no  trace  of  the  distinction,  set  up  in  the  course 
of  the  argument,  that  such  debt  must  be  a  mercantile  debt  incurred 
by  joint  traders.  Nor  can  I  perceive  why  that  should  be  so.  It  is  true 
that  the  question  has  most  frequently  arisen  in  such  cases.  But  this 
would  naturally  occur;  for  courts  of  equity,  as  stated  in  Gray  v.  Chis- 
well,  9  Ves.  118,  by  Lord  Eldon,  have,  in  establishing  the  rule,  acted 
upon  the  intention  of  the  parties,  and  in  all  mercantile  transactions  such 
intention  is  more  obvious,  for  such  contracts  by  the  mercantile  law  are 
joint  and  several.  But  in  Cowell  v.  Sikes,  1  Russ.  191,  the  two  joint 
debtors  were  not  partners  in  any  trade,  and  yet  the  decision  there  was 
that  the  creditor  might  recover  against  the  deceased  partner's  effects. 
It  is  said  that  in  Sleach's  Case,  1  Mer.  564,  Sir  W.  Grant  has  decided 
upon  the  distinction  now  contended  for.  I  do  not  apprehend  this  to 
have  been  the  case.  He  says,  indeed,  that  by  the  mercantile  law  a  part- 
nership contract  was  several  as  well  as  joint,  and  then  he  adds  that  this 
may  probably  be  the  reason  why  courts  of  equity  have  considered  joint 
contracts  of  this  sort  (that  is,  contracts  joint  in  form)  as  standing  on  a 
different  footing  from  others.  I  conceive,  therefore,  that  partnership 
trading  debts  are  only  one,  and  that  the  most  frequent,  case  of  the 
general  rule,  which  is  that,  wherever  a  court  of  equity  sees  that  in  a 
contract  joint  in  form  the  real  intention  of  the  parties  is  that  it  shall 
be  joint  and  several,  it  will  give  effect  to  such  intention.  Now,  I 
think  that  a  contract  for  a  loan  of  money,  giving  to  the  creditor  the 
benefit  of  the  security  of  several  persons,  is  of  that  description.  Here 
it  is  a  loan  of  money  by  bankers  to  certain  persons,  their  joint  cus- 
tomers. Is  it  not  obviously  the  intention  of  both  parties  that  the 
property  of  all  shall  be  responsible  for  the  money  thus  obtained?  In 
the  case  of  Simpson  v.  Vaughan,  2  Atk.  31,  Lord  Hardwicke,  upon 
this  obvious  intention,  corrected  the  mistake  in  the  joint  bond.  Then 
the  question  arises  whether  this  equity  exists  until  after  all  the  sur- 
viving contractors  have  been  found  incapable  of  paying  the  amount. 
I  think  that  question  concluded  by  the  case  of  Wilkinson  v.  Hender- 
son, 1  M.  &  K.  583,  to  the  reasons  of  which  I  fully  accede. 

The  other  question  raised  upon  the  present  demurrer  is  whether 
Dakin  ought  not  to  have  been  joined  as  a  party  to  this  suit.  I  think 
he  ought.  In  the  first  place,  it  is  not  sufficiently  stated  whether  his 
insolvency  is  of  a  permanent  description ;  and,  secondly,  he  is  at  all 
events  interested  in  taking  the  account  as  to  the  amount  of  the  joint 


SEVERABLE   CHARACTER   OF  JOINT   OBLIGATIONS  165 

debt,   although   it  is  true   no   decree  can   be   made  against  him,   nor 
against  the  two  solvent  partners. 

Demurrer  for  want  of  equity  overruled.  Demurrer  for  want  of 
parties  allowed. 

KENDALL  et  al.  v.  HAMILTON. 
(House  of  Lords,  1879.    L.  R.  4  App.  Cas,  504.) 

The  plaintiffs,  Kendall  and  others,  in  consequence  of  contracts  made 
with  the  firm  of  Wilson  &  McLay,  accepted  certain  bills  and  entered 
into  other  transactions,  the  result  of  which  was  that  a  large  sum  was 
owing  to  them  from  said  firm.  They  brought  several  actions  against 
Wilson  &  McLay  to  recover  this  indebtedness  and  obtained  judgments 
in  their  favor.  These  judgments  were  not  satisfied.  Wilson  &  Mc- 
Lay being  in  bankruptcy,  the  plaintiffs  proved  their  claims  in  the  bank- 
ruptcy proceedings  and  received  a  small  dividend.  The  plaintiffs, 
subsequently  learning  for  the  first  time  that  the  defendant  Hamilton 
was  a  partner  with  Wilson  &  McLay  in  the  transactions  in  which  they 
had  made  their  advances,  brought  action  against  Hamilton,  seeking 
to  hold  him  jointly  liable  for  said  indebtedness.  In  the  trial  court 
judgment  was  given  for  plaintiff's.  On  appeal  this  judgment  was  re- 
versed. From  this  judgment  of  the  reversal  the  present  appeal  was 
taken  to  the  House  of  Lords. 

Cairns,  L.  C.^  (after  disposing  of  the  case  against  the  plaintiffs  on 
the  ground  of  agency).  My  Lords,  if  the  view  which  I  have  taken  of 
the  facts  and  of  the  law  applicable  to  them  is  correct,  it  is  not  neces- 
sary to  look  at  Wilson,  McLay,  and  Hamilton  in  the  position  of  co- 
contractors ;  but,  looking  at  them  in  this  light,  I  must  say  that  the 
case  of  King  v.  Hoare,  13  M.  &  W.  494,  appears  to  me  to  have  been 
decided  on  satisfactory  grounds.  It  is  the  right  of  persons  jointly  li- 
able to  pay  a  debt  to  insist  on  being  sued  together.  If,  then,  there 
are  three  persons  so  liable,  and  the  creditor  sues  two  of  them,  and 
those  two  make  no  objection,  the  creditor  may  recover  judgment  against 
those  two.  But,  should  he  afterwards  bring  a  farther  action  against 
the  third,  that  third  may  justly  contend  that  the  three  should  be  sued 
together.  It  is  no  answer  to  him  to  say  that  the  other  two  were  first 
sued  and  made  no  objection,  for  the  objection  is  the  objection  of  the 
third,  and  not  of  the  other  two.  Nor  is  it  any  answer  to  him  to  say 
that  whatevet  he  pays  on  the  judgment  against  himself  he  may  have 
allowed  in  account  with  the  others,  because  he  may  fairly  require, 
with  a  view  to  his  right  of  account  or  contribution,  to  have  the  iden- 
tity and  the  amount  of  the  debt  constituted  and  declared  in  one  and 
the  same  judgment  with  his  co-contractors.  If,  therefore,  when  the 
third  is  sued,  and  requires  that  the  other  two  should  be  joined  as  par- 
ties, the  creditor  has  to  admit  that  he  cannot  join  the  other  two  be- 

T  Part  of  the  opinion  Is  omitted  and  tbe  statement  of  facts  is  rewritten. 


166  PARTNERSHIP  LIABILITY 

cause  he  has  already  recovered  a  judgment  against  them  in  the  same 
cause  of  action,  this  is  equivalent  to  saying  that  he  has  disabled  him- 
self from  suing  the  third  in  the  way  in  which  the  third  has  a  right  to 
be  sued. 

It  has  been  suggested  that,  even  assuming  the  case  of  King  v,  Hoare, 
13  M.  &  W.  494,  to  have  been  rightly  decided,  the  law  as  laid  down  in 
that  case  has  been  altered  by  the  judicature  acts  and  by  the  abolition 
of  the  plea  in  abatement.  I  am  unable  to  agree  to  this  suggestion.  I 
cannot  think  that  the  judicature  acts  have  changed  what  was  formerly 
a  joint  right  of  action  into  a  right  of  bringing  several  and  separate 
actions.  And,  although  the  form  of  objecting  by  means  of  a  plea  in 
abatement  to  the  nonjoinder  of  a  defendant  who  ought  to  be  included 
in  the  action,  is  abolished,  yet  I  conceive  that  the  application  to  have 
the  person  so  omitted  included  as  a  defendant  ought  to  be  granted  or 
refused  on  the  same  principles  on  which  a  plea  in  abatement  would 
have  succeeded  or  failed.  In  this  particular  case,  indeed,  I  observe 
the  judgment  against  Wilson  &  McLay  was  obtained  before  the  ju- 
dicature act  came  into  operation;  and  if  this  judgment  then  became 
pleadable  in  bar,  according  to  King  v.  Hoare,  supra,  by  Hamilton  in 
answer  to  an  action  against  himself,  I  cannot  see  how  this  defense  is 
taken  away  from  him  by  the  judicature  act  subsequently  coming  into 
operation.     *     *     * 

If,  therefore,  this  case  is  to  be  looked  at  as  a  case  in  which  judg- 
ment has  been  recovered  for  a  partnership  debt  against  two  out  of 
three  copartners,  it  appears  to  me  that,  on  the  principle  of  King  v. 
Hoare,  13  Mees.  &  W.  494,  the  judgment  would  be  a  bar  at  law  to  a 
subsequent  action  against  the  third  copartner;  and  I  know  of  no  prin- 
ciple on  which  a  court  of  equity  could  hold  the  debt  to  be  several  for 
the  purpose  of  preventing  such  a  result. 

In  any  view  of  the  case,  therefore,  I  am  of  opinion  that  the  judg- 
ment of  the  Court  of  Appeal  was  correct,  and  I  have  to  move  your 
Lordships  to  dismiss  the  appeal,  with  costs. 

'  Shelborne,  L.  My  Lords,  the  argument  of  the  appellants  was 
chiefly,  if  not  wholly,  founded  upon  the  course  of  the  Court  of  Chan- 
cery in  the  administration  of  the  assets  of  a  deceased  person  who  has 
been  a  partner  in  a  trading  firm,  and  upon  the  language  held  by  several 
judges  of  high  authority  with  respect  to  the  equitable  position  of  part- 
nership creditors. 

If  that  language  were  found  to  be  technically  exact,  when  tested  by 
the  practice  of  courts  of  equity,  upon  all  occasions  when  the  rights  of 
partnership  creditors  have  come  in  question,  it  might  (perhaps)  be  a 
sound  conclusion  that  its  principle  ought  to  be  extended  to  such  a  case 
as  the  present,  though  no  precedent  directly  in  point  has  been  produced. 
But  the  fact  is  otherwise.  If  every  debt  of  a  trading  partnership  were 
regarded  in  equity  as,  from  its  commencement,  joint  and  several,  in 
the  proper  sense  of  those  words,  there  could  be  no  reason  whv,  in 
bankruptcy,  where  equitable  are  regarded  as  much  as  legal  rights,  it 


SEVERABLE   CHARACTEB   OF  JOINT   OBUGATIONS  167 

should  not  have  been  treated  in  the  same  way  as  any  other  joint  and 
several  debt;  nor  why  Lord  Eldon  should  have  made  such  a  decree 
as  he  did  in  the  case  of  Gray  v.  Chiswcll,  9  Vcs.  118.  Nor  do  I  think 
it  possible  that  if,  in  equity,  a  separate  debt  due  from  a  creditor  of  a 
firm  to  one  of  the  partners  could  be  set  off  against  the  debt  of  the  firm, 
there  would  not  have  been  ample  authority  for  that  proposition. 

If  no  rule  had  been  established  in  equity,  giving  partnership  credi- 
tors a  remedy  against  the  assets  of  a  deceased  partner,  it  would  have 
seemed  clear,  on  principle,  that  in  all  these  cases,  when  there  was  no 
mistake  to  be  rectified  in  any  written  instrument,  the  legal  contract 
between  the  creditor  and  the  debtors  was  the  only  contract,  and  that 
its  construction  must  be  the  same  in  equity  as  at  law. 

I  conclude,  therefore,  that  those  expressions  of  eminent  judges  in 
which  partnership  debts  have  been  spoken  of  as  in  equity  joint  and 
several  were  not  meant  by  them  to  be  understood  in  the  proper  and 
technical  sense  of  those  words,  and  that  they  cannot  safely  be  used  to 
establish  any  rule  or  principle  extending  beyond  those  limits  within 
which  courts  of  equity  have  hitherto  given  to  creditors  of  a  partner- 
ship remedies  which  they  could  not  have  obtained  at  law.     *     *     * 

My  conclusion  is  that  in  the  present  case  there  is  no  equity  upon 
which  the  appellants  can  be  entitled  to  be  relieved  from  the  legal  ef- 
fect of  the  judgment  obtained  by  them  against  Wilson,  IMcLay  &  Co.,  if 
(as  the  equitable  argument  assumes)  that  judgment  had  the  effect  of 
extinguishing,  in  the  lifetime  of  all  the  partners,  the  legal  liability  of 
the  respondent  as  a  partner  for  the  debt  previously  due  from  the  part- 
nership of  which  he  was  a  member.  There  is  no  question  here  of  jus 
accrescendi.  The  question  relates  simply  to  the  constitution  of  the  ap- 
pellants' debt.  Before  the  action  it  was  a  joint  debt;  but  by  the  re- 
sult of  the  action  (if  the  decision  in  King  v.  Hoare,  supra,  is  right, 
and  is  applicable  to  this  case),  it  became  the  separate  debt  of  Wilson, 
McLay  &  Co.  only.  If  the  joint  debt,  for  wdiich  alone  the  respondent 
was  ever  liable,  was  merged  and  extinguished  at  law  by  this  judgment 
(on  which  the  respondent  is  clearly  not  liable,  either  at  law  or  in 
equity),  it  seems  to  me  to  be  impossible  that  equity  should,  on  that 
ground,  raise  or  imply  against  him,  out  of  the  original  contract,  a  sep- 
arate liability  to  the  appellants  from  which  he  is  free  at  law,  whatever 
may  be  the  rights,  by  way  of  contribution,  indemnity,  or  otherwise, 
which  Wilson,  McLay  &  Co.  may  possess  against  him  in  respect  of 
this  judgment.     ♦     *     * 

Appeal  dismissed,  with  costs. 


168  PARTNERSHIP  LIABILITY 


IV.  Liability  of  Estate  of  Deceased  Partner* 


VOORHIS  V.  CHILDS'  EXECUTOR. 

(Court  of  Appeals  of  New  York,  1858.    17  N.  Y.  354.) 

Selden,  J.®  Prior  to  the  enactment  of  the  Code  of  Procedure  there 
was  a  conflict  of  opinion  between  the  courts  of  this  state  and  those  of 
England  as  to  the  remedy  allowed  to  the  creditors  of  a  partnership 
against  the  representatives  of  a  deceased  partner.  It  was  conceded  by 
both  that  only  the  surviving  partners  could  be  sued  at  law;  but  it  was 
held  by  the  English  courts  that  the  representatives  of  the  deceased 
partner  might  be  immediately  proceeded  against  in  equity  and  com- 
pelled to  pay  the  entire  debts  of  the  firm,  without  any  previous  resort 
to  the  surviving  members,  or  any  evidence  that  such  debts  could  not  be 
collected  from  them,  while,  on  the  other  hand,  our  courts  held  either 
that  the  remedy  against  the  survivors  must  first  be  exhausted  or  it 
must  appear  that  they  were  insolvent  and  unable  to  pay. 

Prior  to  the  case  of  Devaynes  v.  Noble,  1  Mer.  397,  the  decisions 
of  the  Court  of  Chancery  in  England  appear  to  have  been,  for  a  con- 
siderable time  at  least,  in  accordance  with  those  in  this  state.  The 
precise  ground  of  the  change  seems  to  have  been  this:  In  the  earlier 
cases  it  had  been  assumed  that  the  liability  in  equity  of  the  estate  of 
the  deceased  partner  was  produced  by  a  sort  of  equitable  transfer  to 
the  creditor  of  the  right  of  the  surviving  partners  to  insist  that  the  es- 
tate of  their  deceased  associate  should  contribute  to  the  payment  of 
the  debts  of  the  firm ;  but,  upon  its  being  afterwards  held  that  the  ob- 
ligations of  partners  were  to  be  regarded  as  joint  and  several,  the  Eng- 
lish courts  said  that  in  all  cases  of  that  kind  creditors  had  a  right  to 
pursue  their  remedies  against  all  or  either  of  their  debtors.  They  there- 
fore held  that  they  might  proceed  immediately  in  equity  against  the 
representatives  of  a  deceased  partner,  without  resorting  to  their  legal 
remedies  against  the  survivors.  The  courts  in  this  state,  however,  re- 
fused, for  what  appear  to  be  substantial  reasons,  to  adopt  the  change. 
Its  effect  was  to  apply  to  a  proceeding  in  equity  the  strict  legal  rules 
applicable  to  suits  at  law.  It  obviously  overlooked  many  equitable  con- 
siderations of  great  force.  The  surviving  partners  succeed  primarily 
to  all  the  rights  and  interests  of  the  partnership.  They  have  the  entire 
control  of  the  partnership  property,  and  the  sole  right  to  collect  the 
partnership  dues.  The  assets  of  the  firm  are,  of  course,  to  be  regard- 
ed as  the  primary  fund  for  the  payment  of  the  partnership  debts,  and 

8  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  73. 
»  Statement  of  facts  and  part  of  the  opinion  are  omitted. 


LIABILITY   OF   ESTATE   OF   DECEASED   PAETNEB  1G9 

it  would  seem  equitable  at  least  that  the  parties  havin;^  the  exclusive 
possession  of  this  fund  should  be  first  called  upon.  The  answer  given 
to  this  by  the  English  courts,  that  the  representatives  of  the  deceased 
partner  have  their  remedy  over,  seems  hardly  satisfactory.  The  pre- 
sumption is  that  the  primary  fund  is  sufficient  to  meet  the  demands 
upon  it.  Why,  then,  permit  in  equity  a  resort  to  another  fund,  and 
thus  give  rise  to  a  second  action  for  its  reimbursement.  Besides,  these 
English  decisions,  permitting  the  creditor  to  proceed  in  the  farst  in- 
stance in  equity  against  the  estate  of  the  deceased  partner,  are  in  con- 
flict with  the  established  doctrine  that  parties  must  first  exhaust  their 
legal  remedies  before  resorting  to  courts  of  equity. 

But,  whether  these  considerations  are  sufficient  to  justify  the  posi- 
tion assumed  by  our  courts  or  not,  it  may  be  regarded  as  having  been 
settled  in  this  state,  prior  to  the  Code,  that  the  creditor  in  such  a  case 
could  not  come  into  a  court  of  equity  without  showing  either  that  the 
surviving  partners  had  been  proceeded  against  to  execution  at  law  or 
that  they  were  insolvent.  Grant  v.  Shurter,  1  Wend.  148 ;  Hamersly  v, 
Lambert,  2  John.  Ch.  508 ;  Leake  &  Watts  Orphan  House  v.  Law- 
rence, 11  Paige,  80;  Id.,  2  Denio,  577.  In  the  last  of  these  cases  the 
English  cases  referred  to  were  cited  and  distinctly  overruled.  There 
are  many  American  cases,  both  in  the  state  and  United  States  courts 
supporting  and  confirming  the  doctrine  of  the  courts  of  this  state  upon 
this  subject.  Pendleton  v.  Phelps,  4  Day  (Conn.)  481,  Fed.  Cas.  No. 
10,923;  Van  Reimsdyk  v.  Kane,  1  Gall.  (U.  S.)  385,  Fed.  Cas.  No. 
16,871;  Sturges  v.  Beach,  1  Conn.  509;  Alsop  v.  Mather,  8  Conn. 
584,  21  Am.  Dec.  703;  Caldwell  v.  Stileman,  1  Rawle  (Pa.)  212; 
Hubble  V.  Perrin,  3  Ham.  (Ohio)  287.  [After  holding  that  section 
118  of  the  New  York  Code  did  not  authorize  the  action,  the  opinion 
concludes:] 

As,  therefore,  the  present  action  must  be  regarded  as  one  of  a 
purely  legal  nature,  brought  against  the  surviving  partners  upon  their 
legal  liability,  it  follows  that  the  executors  of  the  deceased  partner,  who 
is  liable  only  in  equity,  were  improperly  made  parties.  *  *  *  Jf 
we  are  right  in  our  reasoning,  the  complaint  is  clearly  defective  in 
this  respect,  and  the  judgment  of  the  Supreme  Court  should  therefore 
be  affirmed. 

Judgment  affirmed. 


DOGGETT  V.  DILL. 

(Supreme  Court  of  Illinois,  1884.    108  111.  560,  48  Am.  Rep.  5G5.) 

Craig,  J.^°  William  E.  Doggett  died  April  3,  1876,  testate,  and 
Kate  E.  Doggett,  appellant,  who  was  named  as  executrix,  qualified  as 
such  in  the  probate  court  of  Cook  county.  Doggett,  at  the  time  of  his 
death  and  for  many  years  before,  was  a  member  of  the  firm  of  Dog- 

10  Part  of  the  opinion  is  omitted. 


-^"^  PARTNERSHIP  LIABILITY 

gett,  Barrett  &  Hills.  In  1871,  T.  C.  H.  and  Lucy  W.  Smith  executed 
their  two  promissory  notes  for  certain  sums  of  money,  payable  to 
Charles  H.  Dill.  The  two  notes,  on  the  date  of  their  execution,  were 
guaranteed  by  Doggett,  Barrett  &  Hills,  the  firm  name  to  the  guaranty 
being  executed  by  Doggett.  No  effort  was  made  by  Dill  to  collect  the 
amount  due  on  the  notes  from  the  firm  assets,  or  from  the  surviving 
members  of  the  firm  of  Doggett,  Barrett  &  Hills ;  but  after  the  death 
of  Doggett  he  presented  his  claim  to  the  probate  court,  to  be  allowed 
against  the  estate  of  deceased.  The  probate  court,  upon  the  evidence 
introduced,  allowed  the  claim,  and  the  executrix  appealed  to  the  cir- 
cuit court,  where  a  second  trial  was  had,  resulting  in  a  judgment 
against  the  estate.  An  appeal  was  then  taken  to  the  Appellate  Court, 
where  the  judgment  of  the  circuit  court  was  affirmed,  and  this  record 
is  brought  here  by  the  executrix  for  the  purpose  of  reversing  the 
judgment  of  the  Appellate  Court. 

It  is  insisted  by  appellant  that  a  partnership  demand  cannot  be  al- 
lowed against  the  individual  estate  of  a  deceased  partner  until  the  legal 
remedy  against  the  partnership  assets  and  surviving  partners  has  been 
exhausted.     *     *     * 

But,  independent  of  the  authorities,  we  are  satisfied  that  the  rule 
holding  the  estate  of  a  deceased  partner  primarily  liable  in  equity  is 
sound  in  principle.  Doggett,  in  his  lifetime,  was  individually  liable 
for  this  debt,  and  if  he  had  been  sued,  and  a  judgment  obtained  against 
him,  any  of  his  individual  property  would  have  been  liable  to  be  taken 
and  sold  in  satisfaction  of  the  debt.  It  is  true,  if  he  had  been  sued  at 
law  in  his  lifetime,  it  would  have  been  necessary  to  join  his  partners 
as  defendants  in  the  action;  but  after  judgment  it  was  not  necessary 
to  exhaust  the  partnership  assets  before  individual  property  could  be 
taken,  but  the  creditor  could  resort  to  such  property  in  the  first  in- 
stance, if  he  saw  proper.  Did  the  death  of  Doggett  in  any  manner 
change  the  liability  which  existed  on  this  contract  before  his  death? 
We  think  not.  The  liability  continued  as  before,  but  the  remedy  to 
enforce  that  liability  was  changed  from  a  court  of  law  to  a  court  ex- 
ercising equitable  powers.  Before  his  death  the  liability  could  only 
be  enforced  by  a  joint  action  against  Doggett  and  his  partners.  After 
his  death  the  liability  continued,  but  could  only  be  enforced  in  the 
probate  court,  which  in  the  allowance  of  claims  exercises  equitable 
powers.  The  death  of  a  debtor  may  extinguish  a  legal  remedy  on  a 
joint  contract;  but  we  are  not  aware  that  it  has  ever  been  held  that 
the  death  of  a  debtor  could  extinguish  the  debt  or  discharge  the  estate 
of  the  deceased. 

In  conclusion,  we  are  satisfied,  under  the  facts  as  disclosed  by  this 
record,  appellee's  claim  was  a  proper  one  to  be  allowed  against  the 
estate  of  the  deceased,  and  that  it  was  properly  allowed  by  the  probate 
court. 

The  judgment  of  the  Appellate  Court  will  therefore  be  affirmed. 

Judgment  affirmed. 


EXTENT   OF   LIABILITY   IN    CONTBACT  171 

y.  Extent  of  Liability  in  Contract  ^* 


JUDD  LINSEED  &  SPERM  OIL  COMPANY  v.  HUBBELL  et  al. 

(Court  of  Appeals  of  New  York,  1879.     76  N.  Y.  543.) 

Danforth,  J.  There  are  appeals  in  this  case  from  two  orders  of 
the  General  Term  of  the  Court  of  Common  Pleas  in  the  city  of  New 
York — one  (of  January  6th)  reversing  an  order  of  the  Special  Term 
of  that  court  and  directing-  an  amendment  of  the  judgment  in  this 
action,  and  the  other  (of  February  3d)  denying  a  motion  made  by 
the  plaintiff  to  amend  and  resettle  the  first  order.  If  the  court  had 
power  to  make  the  order  of  January,  they  could  amend  or  refuse  to 
amend  it,  and  their  determination  is  final;  and,  although  many  ques- 
tions have  been  argued  by  counsel  concerning  this  matter,  one  only  is 
properly  before  us  for  review.  Had  the  court  power  to  make  the 
order?  Evidently  it  had,  unless  restrained  by  that  provision  of  the 
statute  which  declares  that  "no  judgment  in  any  court  of  record  shall 
be  set  aside  for  irregularity  on  motion,  unless  such  motion  is  made 
within  one  year  after  the  time  such  judgment  was  rendered."  Title 
4,  pt.  3,  c.  6,  art.  1,  §  2,  p.  359  (1st  Ed.)  2  Rev.  St.  As  the  judg- 
ment was  rendered  on  the  27th  of  April,  1872,  and  the  order  did  in 
effect  set  it  aside  and  was  made  on  motion,  notice  of  which  was  not 
served  until  January,  1877,  it  is  apparent  that  it  is  necessary  to  de- 
termine whether  the  cause  upon  which  the  court  acted  was  or  not 
an  irregularity  and  nothing  more. 

At  the  outset  the  plaintiff  was  called  upon  "to  show  cause  why  the 
judgment  should  not  be  vacated  and  set  aside  as  irregular,  in  that  a 
several  judgment  is  entered  against  the  defendant  Hubbell  for  $40,- 
950.29,  and  a  several  judgment  is  entered  against  the  defendant  Tay- 
lor for  $43,420.70,  instead  of  a  judgment  against  the  defendants  joint- 
ly, pursuant  to  the  summons  and  complaint,  also  as  unauthorized  by 
law."  The  moving  papers  establish  beyond  controversy  that  the  cause 
of  action  was  a  joint  liability  on  the  part  of  Hubbell  and  Taylor  as  co- 
partners. This  the  complaint  alleged,  the  defendant  Hubbell  by  his 
default  admitted,  and  the  defendant  Taylor  has  had  that  fact  found 
against  him  by  a  referee,  and  by  his  silence  acquiesces  in  the  finding. 
Upon  that  determination  the  plaintiffs,  at  the  same  time  and  by  means 
of  the  same  record  or  judgment  roll,  took  judgments  against  the  de- 
fendants separately,  as  stated  in  the  order  to  show  cause.  This  was 
clearly  irregular;  but  we  think  it  was  nothing  more.  The  plaintiffs 
did  not  adhere  "to  the  prescribed  rule  or  mode  of  proceeding,"  by 

11  For  a  discussion  of  principles,  see  Gilmore  on  PartBcrship,  §  74. 


172  PARTNERSHI]^  LIABILITY 

which  they  were  entitled  to  a  joint  judgment,  and  which  a  due  and 
orderly  conduct  of  the  suit  required  them  to  take.  But  this  defect 
was  merely  technical,  and  does  not  affect  any  substantial  right  of  the 
adverse  party.  It  does  not  in  any  way  increase  the  liability  of  the 
defendant,  for  upon  each  partner  rests  an  absolute  liability  for  the 
whole  amount  of  every  debt  due  from  the  partnership  (Parsons  on 
Partnership  [2d  Ed.]  63)  ;  and,  although  originally  a  joint  contract, 
it  may  be  separate  as  to  its  effects.  Though  all  are  sued  jointly,  and 
a  joint  judgment  obtained,  and  a  joint  execution  taken  out,  yet  it  may 
be  enforced  against  one  only.  Each  partner  is  answerable  for  the 
whole,  and  not  merely  for  his  proportionable  part;  and,  as  the  judg- 
ments were  taken  against  each  partner  for  a  partnership  debt,  the 
partnership  property  is  bound  to  the  same  extent  as  if  there  had  been 
but  one  judgment  for  the  whole  against  both  partners.  Brinkerhoff  v. 
Marvin,  5  Johns.  Ch.  326.  Nor  docs  the  form  of  the  judgment  in 
any  way  affect  the  debtor's  relations  with  his  copartner;  for,  if  he 
pays  the  debt  or  judgment,  he  will  be  entitled  to  contribution,  or  to 
a  credit  for  the  sum  paid,  in  any  accounting  respecting  the  partnership 
affairs. 

The  order  of  the  General  Term,  made  January,  1879,  reversing 
the  order  of  the  Special  Term,  should  be  reversed,  and  the  order  of 
Special  Term  affirmed ;  and  the  appeal  from  the  order  of  the  General 
Term,  made  February,  1879,  should  be  dismissed,  without  costs  to 
either  party. 


VI.  Nature  and  Extent  of  Liability  in  Tort  ^' 


WHITE  V.  SMITH. 

(Court  of  Appeals  and  Court  of  Errors  of  South  Carolina,  1860.    12  Rich.  Law, 

595.) 

Wardlaw,  J.^^  This  is  an  action  on  the  case  to  recover  damages 
from  the  defendant  for  negligence  in  the  care  of  a  slave  committed  to 
his  custody  on  hire,  by  means  whereof  the  slave  was  destroyed  and 
wholly  lost  to  the  plaintiff.  The  first  ground  of  appeal  insists  that 
there  is  a  variance  between  the  allegation  that  the  slave  was  hired  to 
defendant  and  the  proof  of  hiring  to  defendant  and  his  partner,  Moore, 
fatal  to  the  action  against  one  of  the  partners,  inasmuch  as  both  should 
have  been  sued.  In  actions  ex  contractu  it  was  formerly  the  rule  that 
the  nonjoinder  of  one  or  more  joint  contractors  was  fatal  on  motion 
for  nonsuit,  where  the  general  issue  was  pleaded;  but  it  is  settled 
since  Rice  v.  Shute,  5  Burr.  2611,  in  avoidance  of  the  delay  and  ex- 
pense of  a  trial,  that  this  objection  is  waived  by  pleading  the  general 

12  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  75. 
1 8  Part  of  the  opinion  is  omitted. 


NATURE   AND    EXTENT   OF   LIABILITY   IN   TORT  173 

issue,  and  that  advantage  of  it  can  be  taken  only  by  plea  in  abatement, 
even  where  the  plaintiff  fully  knew  who  were  the  joint  contractors. 
And  whatever  may  be  the  form  of  action,  wherever  the  nonperform- 
ance of  a  contract  is  the  basis  of  the  suit  and  the  contract  must  be 
proved,  as  in  case  for  breach  of  a  warranty  of  sale,  the  nonjoinder  of 
a  joint  contractor  is  fatal  on  plea  in  abatement;  for  the  plaintiff  will 
not  be  allowed,  by  varying  the  form  of  his  action,  to  annul  or  obviate 
the  rules  of  legal  procedure  concerning  parties  to  contracts.  1  Chit. 
PI.  87 ;  Max  v.  Roberts,  12  East,  94 ;  Weall  v.  King,  12  East,  4541 ; 
Stockflcet  v.  Fryer,  2  Strob.  307;  Patton  v.  Magrath,  Rice,  1G2,  33 
Am.  Dec.  98.  On  the  contrary,  in  actions  ex  delicto  generally,  and 
always  where  a  contract  is  not  the  gravamen  of  suit  and  is  merely  a 
matter  of  inducement  or  recital,  a  plaintiff  may,  at  his  option,  treat  the 
tort  committed  by  two  or  more  persons  as  either  joint  or  several,  and 
accordingly  sue  all  or  any  of  the  tort-feasors ;  and  if  one  of  the  wrong- 
doers be  sued  alone,  as  the  tort  attaches  upon  each  individually,  he 
cannot  plead  the  nonjoinder  of  the  others  in  bar  or  abatement,  nor 
give  it  in  evidence  under  the  general  issue.  1  Chit.  PI.  87 ;  Atty.  Gen. 
V.  Burgess,  Bunb.  223;  Govett  v.  Radnidge,  3  East.  62;  6  Taunt. 
29,  35,  42;  6  Jno.  31.  Now,  in  this  case,  the  gist  of  the  action  is  the 
negligence  of  the  defendant  in  the  safe-keeping  of  a  slave  under  his 
charge,  and  the  contract  of  hiring  is  merely  matter  of  preliminary 
statement,  to  explain  that  the  slave  was  really  under  the  charge  of 
defendant,  and  proof  of  any  other  process  by  which  the  charge  re- 
sulted would  have  been  admissible. 

In  his  first  ground  of  appeal  defendant  also  insists  that  if  there 
were  any  negligence  it  was  on  the  part  of  the  agent  of  the  partners, 
Moore  &  Smith  (and  not  his  individual  agent),  for  the  torts  of  whom 
he  is  not  separately  liable.  From  the  community  of  interests  between 
partners,  each  is  responsible  for  the  contracts  of  all  or  any  one  of 
them  in  the  prosecution  of  the  business  of  the  partnership.  Jackson 
was  no  less  the  agent  of  the  defendant  because  he  was  also  the  agent 
of  the  partner,  Moore.  Gow,  in  his  treatise  on  Partnership,  184,  185, 
and  notes  there,  and  IGO,  after  laying  down  the  doctrine  that  in  such 
actions  as  case  for  malfeasance  the  tort  as  between  partners  attaches 
upon  each  of  the  wrongdoers  individually,  and  that  one  may  be  sued 
alone,  proceeds :  "Nor  in  such  an  action  is  it  material  whether  the  tort 
was  committed  by  the  partners  personally,  or  by  their  servant  in  the 
prosecution  of  their  business,  since,  in  the  latter  case,  the  rule  'qui 
facit  per  alium,  facit  per  se,'  applies,  and  renders  them  and  each  of 
them  responsible  for  the  consequences."  To  the  same  etTect,  other 
text-writers  on  partnership  express  the  doctrine.  Story,  Part.  167; 
Story,  Agency,  308 ;  3  CoUver,  Part.  p.  414,  c.  1,  §  6 ;  Id.  p.  640,  c.  6, 
§  3 ;  Watson,  Part.  p.  235,  c.  4.  In  Mitchell  v.  Tarbutt,  5  T.  R.  649, 
in  an  action  on  the  case,  against  some  of  several  partners  in  the  own- 
ership of  a  ship,  for  negligence  in  their  servant  or  agent,  in  running 
down  a  ship  of  plaintitts  laden   with  sugar,  whereby  the  sugar  was 


174  PARTNERSHIP  LIABILITY 

lost,  it  was  held  that  defendants  could  not  plead  in  abatement  that  there 
are  other  partners  not  sued.    Carthew,  171,  294;  7  T.  R.  257,    *    *    * 
Defendant's  motion  for  new  trial  refused. 


VII.  Commencement  of   Partnership   Liability  in   Contract — Lia- 
bility of  an  Incoming  Partner  ^* 


WOLFF  V.  MADDEN  et  al. 
(Supreme  Court  of  Washington,  1893.    6  Wash.  514,  33  Pac.  975.) 

Action  by  Samuel  WolflF  against  M.  J.  Madden  and  Joshua  Green 
on  an  acceptance  of  the  Midland  Lumber  Company,  a  partnership  com- 
posed of  M.  J.  Madden  and  Wiley  J.  Brown,  of  which  firm  defendant 
Green  became  a  member  after  the  date  of  such  acceptance.  Defend- 
ant Madden  was  not  served  with  summons,  and  did  not  appear.  From 
a  judgment  in  favor  of  plaintiff,  against  defendant  Green,  the  latter 
appealed. 

Dunbar,  C.  J.^"^  It  is  not  necessary  for  us  to  notice  appellant's  ob- 
jections to  respondent's  contention  that  the  relation  assumed  by  appel- 
lant towards  the  Midland  Lumber  Company  was  that  of  an  incoming 
partner;  for,  assuming,  for  the  purposes- of  this  decision,  that  the 
jury  correctly  found  upon  that  proposition,  we  are  unable  to  find  any- 
thing in  the  record  which  would  bind  him  as  an  incoming  partner  to 
pay  debts  of  the  partnership  which  were  contracted  prior  to  his  con- 
nection with  the  partnership.  *  *  *  Considered,  then,  as  an  incom- 
ing partner,  is  he  responsible  for  pre-existing  debts  of  the  company? 
It  is  a  universally  conceded  doctrine  that,  when  a  new  member  is  ad- 
mitted to  a  firm,  he  becomes  one  of  the  firm  for  the  future,  and  not 
for  the  past.  There  is  not  only  no  presumption  that  the  incoming 
partner  assumes  pre-existing  debts,  but  the  presumption  is  that  he 
does  not.  Without  citing  authorities,  which  are  uniform  on  this  sub- 
ject, the  rule  seems  to  be  briefly  and  concisely  stated  by  Lindley  on 
Partnership  (volume  1,  §  208)  as  follows:  "In  order  to  render  an  in- 
coming partner  liable  to  the  creditors  of  the  old  firm,  there  must  be 
some  agreement,  express  or  tacit,  to  that  effect  entered  into  between 
him  and  the  creditors,  and  founded  on  some  sufficient  consideration.  If 
there  be  any  such  agreement,  the  incoming  partner  will  be  bound  by  it, 
but  his  liabilities  in  respect  of  the  old  debts  will  attach  by  virtue  of 
the  new  agreement,  and  not  by  reason  of  his  having  become  a  part- 
ner." In  this  case  there  is  no  showing  of  anything  that  was  said  or 
done  by  appellant  that  could  reasonably  be  construed  into  a  promise 

"  For  a  dJpciisslon  of  principles,  see  Gilmore  on  Partnership,  §§  76,  77. 
16  Part  of  the  opinion  is  omitted. 


COMMENCEMENT   OF   LIABILITT   IN   CONTRACT  175 

to  become  liable  for  the  debt  sued  upon.  The  testimony  of  himself 
and  the  creditors  proves  no  more  than  that  appellant,  as  manager  for 
the  company,  recognized  the  company's  indebtedness.  He  could  do 
no  less  than  this,  as  it  was  a  fact  of  which  he  was  no  doubt  cognizant, 
but  this  is  a  different  proposition  entirely  from  acknowledging  his 
personal  liability;  and,  even  if  there  could  be  any  such  construction 
placed  upon  his  acts  or  words,  there  is  no  showing  of,  or  attempt  to 
show,  any  consideration  for  the  promise.  In  our  judgment,  the  tes- 
timony offered  by  plaintiff  was  utterly  insufficient  to  sustain  the  judg- 
ment, and  defendant's  motion  for  a  nonsuit  should  have  been  grant- 
ed. *  *  *  The  judgment  is  reversed,  and  the  cause  remanded 
to  the  lower  court,  with  instructions  to  grant  defendant's  motion  for 
a  nonsuit,  as  prayed  for. 


HICKS  et  al.  v.  WYATT  et  al. 
(Supreme  Court  of  Arkansas,  1861.    23  Ark.  56.) 

Hicks  and  Wyatt  being  partners  in  the  mercantile  business.  Hicks 
sold  his  interest  in  the  firm  to  one  Thompson  and  retired.  Wyatt  con- 
tinued the  business  with  Thompson  under  the  firm  name  of  Wyatt  & 
Thompson.  This  new  firm  covenanted  with  Hicks  to  pay  all  out- 
standing debts  of  Hicks  &  Wyatt  and  to  hold  said  Hicks  harmless 
from  all  liability.  Hicks,  Arrington  &  Co.  sued  Wyatt  &  Thompson  for 
a  debt  due  plaintiffs  from  Hicks  &  Wyatt.  In  the  trial  court  judg- 
ment was  rendered  in  favor  of  defendants.     Plaintiffs  appeal. 

English,  C.  J.^"  *  ♦  ♦  Hicks,  Arrington  &  Co.  insist  that 
*  *  *  by  virtue  of  the  covenant  above  referred  to  the  firm  of 
Wvatt  &  Thompson  became  liable  to  pay  that  debt,  as  well  as  all  other 
debts  of  the  firm  of  Hicks  &  Wyatt.  But,  if  this  be  conceded  to  be 
true,  it  does  not  follow  that  the  firm  of  Hicks,  Arrington  &  Co.  had 
the  right  of  action  for  the  ?pC>6M,  or  any  part  of  it,  against  the  firm 
of  Wyatt  &  Thompson.  There  was  no  privity  of  contract  between 
these  two  firms.  Wyatt  &  Thompson  covenanted  with  Hicks  to  pay 
all  of  the  debts  of  the  firm  of  Hicks  &  Wyatt,  and  to  save  him  harm- 
less on  account  of  said  debts,  and,  if  they  failed  to  pay  the  debt  in 
question.  Hicks  had  his  remedy  against  them  for  breach  of  their  cove- 
nant; but  Hicks,  Arrington  &  Co.,  who  were  not  parties  to  the  cove- 
nant, had  no  right  of  action  against  the  firm  of  Wyatt  &  Thompson. 
Their  remedy  was  against  the  firm  of  Hicks  &  Wyatt,  and.  Hicks  be- 
ing a  member  of  both  firms,  the  remedy  was  in  equity,  and  not  at  law. 

The  judgment  must  be  affirmed. 

le  Part  of  the  opinion  Is  omitted  and  the  statement  of  facts  Is  abridged. 


176  PARTNERSHIP  LIABILITY 

ARNOLD  et  al.  v.  NICHOLS. 
(Court  of  Appeals  of  New  York,  1S7G.    64  N.  T,  117.) 

Appeal  from  order  of  the  General  Term  of  the  Supreme  Court  in 
the  First  Judicial  Department,  reversing  a  judgment  in  favor  of  plain- 
tiff entered  upon  a  verdict,  and  granting  a  new  trial. 

This  action  was  brought  against  the  defendants,  as  members  of  the 
firm  of  J.  W.  Bowen  &  Co.,  to  recover  an  indebtedness  of  said  Bowen 
to  plaintiffs  testator,  which,  as  alleged  in  the  complaint,  the  said  firm 
had  assumed  and  agreed  to  pay  in  consideration  of  the  transfer  to 
the  firm  by  said  Bowen  of  the  property  and  assets  of  his  business. 

Earl,  J.^^  For  some  years  prior  to  the  15th  day  of  August,  1867, 
the  defendant  Bowen  had  been  engaged  in  the  city  of  New  York  in 
the  business  of  importing  and  dealing  in  fancy  goods,  and  on  that  day 
the  plaintiff's  testator,  Hinman,  loaned  to  him  to  be  used  in  his  busi- 
ness the  sum  of  $2,000.  Bowen  continued  in  business  alone  until  Jan- 
uary, 1868,  when  he  formed  a  copartnership  with  the  defendant  Nich- 
ols, and  Bowen  and  Nichols,  under  the  firm  name  of  J.  M.  Bowen  & 
Co.,  continued  to  carry  on  the  business  until  May,  1869,  when  they 
dissolved.  At  the  time  of  the  formation  of  the  copartnership,  the 
evidence  tends  to  show,  and  we  must  assume  that  the  jury  found, 
that  Bowen  transferred  his  business  assets  to  the  firm  of  J.  M.  Bowen 
&  Co.,  and  that  in  consideration  thereof  the  firm  assumed  and  agreed 
to  pay  certain  specified  debts  of  Bowen,  among  which  was  Hinman's 
debt  for  the  money  loaned  as  above  stated.  It  was  expected  at  the 
time  that  the  assets  would  exceed  the  debts  assumed  by  the  firm  by 
at  least  $30,000,  and  this  excess  of  $30,000  was  to  be  credited  to  Bowen 
on  the  books  of  the  firm  as  his  share  of  capital  to  be  contributed.  The 
assets  were  not  as  large  as  expected,  but  were  shown  to  be  more  than 
sufficient  to  pay  all  the  debts  assumed.  They  were  first  to  be  used  to 
pay  the  debts,  and  the  balance,  whatever  it  might  be,  was  to  be  cred- 
ited to  Bowen. 

Bowen  transferred  to  the  firm  the  assets  to  which  his  creditors  had 
the  right  to  look  for  the  payment  of  their  claims,  and  hence  the  prom- 
ise of  the  firm  to  pay  such  claims  must  be  deemed  to  have  been  made 
for  their  benefit.  It  was  not  made  to  exonerate  Bowen  from  the  pay- 
ment of  his  debts,  and  not  primarily  nor  directly  for  his  benefit,  as 
his  property  was  to  be  taken  to  pay  the  debts,  and  he  was  still  to  re- 
main liable  as  one  of  the  principals  to  pay  them.  This  case  is,  there- 
fore, unlike  the  case  of  Merrill  v.  Green,  55  N.  Y.  270,  and  the  ac- 
tion is  maintainable  upon  the  principles  laid  down  in  the  case  of 
Lawrence  v.  Fox,  20  N.  Y.  268,  and  also  recognized  in  Burr  v.  Beers, 
24  N.  Y.  178,  80  Am.  Dec.  327,  Thorp  v.  Coal  Co.,  48  N.  Y.  253,  and 
Claflin  v,  Ostrom,  54  N.  Y.  581.  Hinman  had  the  right  to  adopt  the 
promise  made  expressly  for  his  benefit.     ♦     *     * 

17  Part  of  the  opinion  is  omitted. 


LIABILITY   or   RETIEING   PAETNEB  177 

The  order  of  the  General  Term  must  be  reversed,  and  the  judg- 
ment entered  upon  the  verdict  affirmed,  with  costs. 
Order  reversed,  and  judgment  accordingly. 


VIII.  Liability  of  Retiring  Partner^* 


T.IOTLEY  V.  WICKOFF. 
(Supreme  Court  of  Michigan,  1897.    113  Mich.  231,  71  N.  W.  520.) 

Montgomery,  J.^'  This  case  was  determined  by  the  circuit  court 
upon  an  agreed  state  of  facts.  The  defendant  and  one  Gill,  as  co- 
partners, became  indebted  to  the  plaintiff  in  the  sum  of  about  $140. 
In  April,  1891,  WickoflF  retired  from  the  firm  of  Wickoff  &  Gill,  and 
Gill,  in  consideration  of  the  partnership  property  all  being  turned  over 
to  him,  assumed  the  payment  of  all  the  partnership  debts.  After  the 
dissolution  of  the  firm,  and  before  this  action  was  brought,  the  amount 
had  been  reduced  from  $140  to  $116,  by  payments  to  plaintiff  made 
by  Gill.  It  further  appears  that  Gill,  shortly  after  the  dissolution, 
stated  to  plaintiff  that  he  had  assumed,  and  agreed  with  Wickoff  to 
pay,  all  the  partnership  indebtedness,  and  that  to  said  statement  plain- 
tiff replied,  "All  right;  pay  as  fast  as  you  can;"  that,  some  time  after 
the  dissolution,  defendant  saw  the  plaintiff,  and  stated  to  him  that, 
according  to  the  terms  of  the  dissolution  between  himself  and  Gill, 
Gill  was  to  pay  the  sum  due  and  owing  to  the  plaintiff,  and  asked  plain- 
tiff if  he  would  release  him  (defendant)  from  the  indebtedness,  to 
which  plaintiff  replied  that  he  would.  Upon  this  state  of  facts,  the 
case  was  submitted  to  the  court,  upon  a  stipulation  that  the  plaintiff 
was  entitled  to  recover  if  the  court  should  find  that  the  defendant  has 
not  been  released  from  the  indebtedness.  The  court  found,  as  matter 
of  law,  that  there  was  no  consideration  for  the  promise  of  the  plaintiff 
to  defendant  to  release  him  from  his  liability  on  the  partnership  in- 
debtedness, and  entered  judgment  for  the  amount  claimed  with 
costs.     *     *     * 

The  case  must  turn  upon  the  question  of  whether  there  was  a  con- 
sideration to  support  the  promise  to  look  to  Gill  alone.  The  authori- 
ties are  not  agreed  upon  the  question  of  whether  the  agreement  of  one 
joint  debtor  or  copartner  to  pay  the  debt  upon  which  the  two  are 
liable  is  a  sufticient  consideration  to  support  a  release  of  his  codebtor. 
The  modern  English  doctrine  appears  to  be  that  such  an  undertaking 
is  a  sufficient  consideration,  on  the  ground  that  the  sole  liability  of  one 
of  two  debtors  may,  under  many  circumstances,  be  more  beneficial 
and  convenient  than  the  joint  liability  of  two,  and  that  whether  it  wa? 

18  For  a  discussion  of  principles,  see  Giliuore  on  Partnership,  {  78. 
i»  Part  of  the  opinion  is  omitted. 
Gilm.Pakt.— 12 


178  PARTNERSHIP  LIABILITY 

actually  a  benefit  in  each  particular  case  will  not  be  inquired  into,  but 
that  the  changed  relation  will  be  held  to  be  a  sufficient  consideration. 
See  Thompson  v.  Percival,  5  Barn.  &.  Adol.  925,  and  Lyth  v.  Ault, 
7  Welsh.,  H.  &  G.  669.     This  doctrine  has  also  found  support  in  this 
country,  to  the  extent  stated  in  Collyer  v.  Moulton,  9  R.  I.  90,  98  Am. 
Dec.  370,  in  which  it  was  said:  "If,  by  a  mutual  arrangement  between 
the  plaintiti'  Collyer  and  the  two  defendants,  INIoulton  had  been  re- 
leased from  his  liability  for  the  work  already  done,  and  a  new  promise 
made  by  Bromley,  the  other  defendant,  to  pay  for  it,  this  would  have 
been  a  release  for  a  valuable  consideration ;  one  debt  would  have  been 
substituted  for  the  other."     See,  also,  Bantz  v.  Basnett,  12  W.  Va. 
772;    Bowyer  v.  Knapp,  15  W.  Va.  277;    Waydell  v.  Luer,  3  Denio 
(N.  Y.)  410.     Contra,  Early  v.  Burt,  68  Iowa,  716,  28  N.  W.  35; 
Wild  V.  Dean,  3  Allen  (Mass.)  579.    In  the  case  of  Johnson  v.  Emer- 
ick,  70  Mich.  215,  38  N.  W.  223,  Mr.  Justice  Champlin,  speaking  for 
the  court,  said:   "Such  discharge  from  liability  is  based  upon  the  ex- 
press or  implied  assent  of  the  creditor,  upon  a  sufficient  consideration ; 
and  a  creditor,  knowing  of  such  relation,  who  goes  on  and  deals  with 
the  other  partners  with  reference  to  the  debt,  may  well  be  held  to  have 
assented  to  the  arrangement,  and  to  have  accepted  the  responsibility 
and  promise  of  the  partner  assuming  to  pay  such  debt.    This  considera- 
tion need  not  be  a  money  consideration.    It  may  be  the  obtaining  of  an 
additional  security,  better  terms  of  payment,  negotiable  securities  which 
the  creditor  may  use  in  his  business,  or  any  other  benefit,  or  it  may  be 
the  loss  of  some  right  or  disadvantage  suffered  by  the  surety  through 
the  act  of  the  creditor."    In  the  present  case  it  will  be  noted  that  the 
transfer  of  the  firm  property  by  defendant  to  Gill  was  not  induced  by 
any  promise  of  plaintiff,  but  had  occurred  before  any  promise  of  release 
was  made;    nor  does  it  appear,  as  before  stated,  that  the  defendant 
lost  any  rights ;   nor  was  any  security  taken  or  accepted  by  the  plain- 
tiff;   nor  does  it  appear  that  the  time  for  the  payment  of  the  debt 
was  extended.     Plaintiff  relies  upon  Walstrom  v.  Hopkins,  103  Pa. 
118,  and  Eagle  Mfg.  Co.  v.  Jennings,  29  Kan.   657,  44  Am.  Rep. 
6G8.     In  the  latter  case  it  was  claimed  that  the  plaintiff  had  due  no- 
tice of  the  dissolution  of  the  firm,  and  the  assumption  of  the  liabilities 
by  Whitney,  and  that  they  accepted  him  for  the  payment  of  the  bill 
of  exchange.      The    court    said:     "The    dissolution    of    the    partner- 
ship,  the  taking  of  all  the   partnership  property,   and   the   assump- 
tion of  all  partnership  liabilities  by  Whitney,  in  no  manner  released 
defendant.     The  alleged  promise  of  plaintiff  was  made  after  the  dis- 
solution, and  not  as  an  inducement  to  or  consideration  of  it.     The 
acceptance  has  never  been  paid.     *     *     *     No  additional  security  of 
any  kind  was  furnished.    The  acceptance  was  not  destroyed,  and  new 
paper  given.     The  plaintiff  received  absolutely  no  consideration,  and, 
even  if  it  did  promise  that  it  would  look  to  Whitney,  such  promise 
was  entirely  without  consideration,  and  in  no  manner  discharged  the 
defendant."     In  Walstrom  v.  Hopkins  it  was  held  that  a  promise  by 


LIABILITY   OF   RETIRING   PARTNER  179 

a  creditor  of  a  firm  to  release  a  partner  who  had  retired  from  the  firm, 
and  to  look  to  the  continuing  partner  only,  for  the  payment  of  his  debt, 
unless  founded  upon  a  legal  consideration,  is  nudum  pactum,  and  can- 
not be  enforced.  The  weight  of  authority  favors  the  contention  that 
the  promise  of  the  continuing  partner  may  be  a  sufiicient  considera- 
tion to  support  the  release  of  the  outgoing  partner.  But,  in  the  absence 
of  such  concurring  or  binding  promise,  we  think  no  well-considered 
case  can  be  found,  holding  that  the  mere  agreement  between  the  part- 
ners will  of  itself  support  the  agreement  of  the  creditor  to  release  the 
outgoing  partner.  Such  an  agreement  docs  not  establish  a  privity  be- 
tween the  continuing  partner  and  the  creditor,  entitling  him  to  sue 
such  creditor  individually.  It  is  only  a  private  executory  contract,  in- 
tended to  regulate  the  rights,  duties,  and  obligations  of  the  co-partners 
between  themselves,  consequent  upon  a  dissolution  of  the  firm.  Wild 
V.  Dean,  3  Allen  (Mass.)  579.  In  the  present  case  there  was  not  only 
no  extension  of  time,  no  acceptance  of  the  paper  of  the  individual 
partner,  but  the  stipulation  does  not  show  an  express  agreement  made 
to  plaintiff  by  Gill  to  pay  the  debt.  The  finding  is  that  Gill  stated  to 
plaintiff  that  he  had  agreed  with  Wickoff  to  pay  all  partnership  in- 
debtedness, and  that  to  this  the  plaintiff  replied,  "All  right;  pay  as 
fast  as  you  can."  It  will  be  noted  that  this  was  not  simultaneous  with 
the  release  of  Wickoff,  nor  did  it  in  terms  establish  a  privity  between 
Gill  and  plaintiff  as  to  the  obligation  of  Gill  to  pay  the  debt  individu- 
ally.   We  think  the  judgment  should  be  affirmed. 


IVTcAREAVY  v.  MAGIRU 
(Supreme  Court  of  Iowa,  1904.    123  Iowa,  605,  99  N.  W.  193.) 

Action  in  equity  to  enjoin  collection  of  a  judgment.  Decree  for 
plaintiflf,  and  defendant  appeals.     Reversed. 

Weaver,  J.^°  The  nature  of  the  controversy  here  presented  may  be 
stated  as  follows:  In  the  year  1889  one  D.  R.  !Magirl  and  the  plain- 
tiff, McAreavy,  were  partners  in  business.  The  firm  borrowed  the 
sum  of  $200  from  Julia  McEnany  (now  Julia  Magirl,  the  defendant 
herein),  and  made  to  her  a  promissory  note  for  that  amount,  signed  in 
the  firm  name.  Thereafter,  and  while  said  note  was  still  outstanding 
and  unpaid,  the  partnership  was  dissolved,  D.  R.  Magirl  taking  the 
firm  property  and  agreeing  to  pay  the  firm  debts,  of  all  which  the  de- 
fendant had  notice.  Later  Magirl  married  the  defendant.  On  July 
28,  1898,  about  eight  years  after  the  maturity  of  the  note,  Mrs.  Ma- 
girl brought  suit  thereon  against  McAreavy,  without  making  her  hus- 
band a  defendant,  and  obtained  judgment  thereon  in  the  sum  of  $-416 
and  costs.  The  judgment  has  never  been  paid.  On  November  9, 
1900,  more  than  10  years  after  the  maturity  of  the  note,  which  had 

«o  Part  of  the  opinion  is  omitted. 


180  PARTNERSHIP  LIABILITY 

been  put  in  judgment  against  McAreavy,  the  latter  began  this  suit, 
alleging  that  by  virtue  of  the  terms  of  dissolution  of  partnership  by 
which  Magirl  assumed  and  agreed  to  pay  this  debt  the  latter  became 
the  principal  debtor,  and  plaintiff  thereafter  stood  in  the  relation  of 
surety  only.  He  further  alleges  that,  plaintiff  having  failed  to  put 
the  note  in  judgment  against  her  husband,  her  right  of  action  therein 
has  become  barred  by  the  statute  of  limitations,  and,  having  thus  neg- 
ligently allowed  the  principal  debtor  to  escape  liability,  the  plaintiff, 
as  surety,  is  also  released,  and  upon  this  theory  he  asks  to  have  the 
collection  enjoined,  and  the  judgment  canceled. 

As  members  of  the  partnership,  both  plaintiff  and  D.  R.  Alagirl  were 
equally  bound  as  principal  debtors  to  the  payee  of  the  note.  When 
Magirl  took  the  partnership  assets  and  assumed  payment  of  the  part- 
nership debts,  then,  as  between  him  and  the  plaintiff,  he  became  lia- 
ble as  the  sole  principal,  and  plaintiff  became  his  surety  for  the  pay- 
ment of  said  note.  This  proposition  is  upheld  by  all  the  authorities, 
and  is  not  denied  by  the  appellant.  When  we  advance  the  next  step, 
and  inquire  whether  this  change  in  the  relations  existing  between  the 
partners  affects  in  any  manner  their  relation  to  the  holder  of  the  note, 
we  find  a  marked  variance  of  views.  The  courts  of  several  states — 
notably  New  York  and  Michigan — hold  to  the  view  that,  when  a 
partner  retires  from  a  firm  under  such  an  agreement,  and  notice  thereof 
is  brought  home  to  the  creditor,  the  latter  is  bound  to  recognize  the 
new  relations  between  the  members  of  the  late  partnership,  and  any 
indulgence  thereafter  shown  to  the  partner  assuming  the  debt  which 
would  have  the  effect  to  discharge  an  original  surety  will  operate  to 
discharge  the  retiring  partner  from  further  obligation.  Millerd  v. 
Thorn,  56  N.  Y.  402;  Colgrove  v.  Tallman,  67  N.  Y.  95,  23  Am.  Rep. 
90;  Smith  v.  Sheldon,  35  Mich.  42,  24  Am.  Rep.  529.  See,  also, 
Leithauser  v.  Baumeister,  47  Minn.  151,  49  N.  W.  660,  28  Am.  St. 
Rep.  336;  Brandt  on  Suretyship  (2d  Ed.)  §  36;  Stearns  on  Surety- 
ship, p.  24;  Baylies  on  Suretyship,  pp.  40,  481;  Shumaker  on  Part- 
nership, 341,  342.  The  reasoning  by  which  this  view  is  supported  is 
very  forcibly  stated  by  Folger,  J.,  in  the  Colgrove  Case,  and  by  Cooley, 
C.  J.,  in  the  Smith  Case,  and  the  writer  of  this  opinion  would  be  con- 
tent to  accept  it  as  authoritative.  The  majority  of  the  court  prefers  to 
follow  the  other  line  of  authorities  as  announcing  the  sounder  prin- 
ciple, and  the  result  arrived  at  cannot  be  said  to  be  essentially  unjust. 
It  is  in  accord  with  the  views  expressed  by  many  courts  and  law  writ- 
ers, and  is  bottomed  upon  the  proposition  that,  the  liability  of  the  part- 
ners as  principal  debtors  being  fixed  by  the  terms  of  the  original  con- 
tract, it  is  not  competent  for  them  by  any  agreement  between  them- 
selves to  change  the  nature  of  that  liability,  or  impose  upon  the  cred- 
itor, without  his  consent,  any  new  or  additional  obligation  or  duty,  a 
neglect  of  which  may  work  a  discharge  of  one  of  such  debtors  from 
his  obligation  to  pay.  The  agreement  between  the  partners  by  which 
one  of  them  assumes  to  pay  the  entire  debt  is  regarded  res  inter  alios 


LIABILITY    OF   RETIRING    PARTNER  181 

acta  as  respects  the  creditor,  who  is  neither  benefited  nor  prejudiced 
thereby.  Barnes  v.  Boyers,  34  W.  Va.  303,  12  S.  E.  708 ;  Buchanan 
V.  Clark,  10  Grat.  (Va.)  164;  Rawson  v.  Taylor,  30  Ohio  St.  389, 
27  Am.  Rep.  464;  2  Collyer  on  Partnership,  c.  24,  §  596;  1  Collyer 
on  Partnership,  c.  17,  §  407;  Story  on  Partnership,  §  334;  Parsons 
on  Partnership  (4th  Ed.)  §§  296,  313,  324;  Shaplcij^h  Hardware  Co. 
V.  Wells,  90  Tex.  110,  37  S.  W.  411,  59  Am.  St.  Rep.  783;  Hall  v. 
Jones,  56  Ala.  493 ;  White  v.  Boone,  71  Tex.  712,  12  S.  W.  51.    *    *    * 

There  is  a  class  of  cases  of  which  Lauman  v.  Nichols,  15  Iowa,  161, 
is  an  example,  in  which  it  is  held  that  a  person  signing  a  note  or  other 
obligation  as  a  joint  maker  may,  nevertheless,  allege  and  prove  that  he 
joined  in  the  execution  of  the  instrument  as  surety  only,  and,  upon 
notice  of  that  fact  being  given  to  the  holder  of  such  obligation,  even 
after  it  is  delivered,  he  is  bound  to  recognize  the  true  relations  of  the 
makers;  but  until  such  notice  is  received  he  may  enforce  payment 
against  all  makers  as  principal  debtors.  At  first  blush  these  two  lines 
of  cases  may  seem  inconsistent,  but  they  are  clearly  distinguishable. 
In  the  former  the  debtors  seek,  by  an  agreement  between  themselves 
alone,  to  change  their  relations  to  the  debt  without  the  consent  of  the 
creditor;  while  in  the  latter  the  original  and  true  relation  of  the  mak- 
ers to  the  debt  is  unchanged,  and  the  rights  and  position  of  the  surety 
are  protected  and  made  effectual  from  the  time  notice  of  such  relation 
is  brought  home  to  the  creditor.  This  distinction  is  recognized  and 
explained  in  Shapleigh  v.  Wells,  supra,  and  Rawson  v.  Taylor,  supra. 

Plaving  found  that  plaintifif  herein  is  not  entitled  to  the  rights  of 
a  surety  as  against  Mrs.  Magirl,  it  is  unnecessary  to  consider  other 
matters  presented  in  argument.  It  is  elementary  that  mere  indulgence 
by  the  creditor  to  one  joint  debtor  will  not  serve  to  discharge  another 
joint  debtor  from  his  obligation  to  pay.  The  claim  has  been  put  in 
judgment  against  the  plaintiff,  and,  save  upon  the  theory  of  his  surety- 
ship, which  we  find  is  unsound,  he  offers  no  reason  why  it  should  be 
canceled  or  annulled. 

The  decree  of  the  district  court  is  therefore  reversed. 


PRESTON    V.    GARRARD. 

(Supreme  Court  of  Georgia,  1904.    120  Ga.  6S9,  48  S.  E.  118,  102  Am.  St  Rep. 

124.) 

Garrard  brought  suit  against  J.  W.  Preston  and  E.  M.  Brown,  as 
partners,  on  a  promissory  note  dated  February  24,  1899,  and  due  one 
year  after  date.  Preston  filed  a  plea  setting  forth  that  the  firm  was 
dissolved  on  December  27,  1900,  all  of  the  debts  of  the  firm  being  as- 
sumed by  Brown;  that  the  dissolution  was  known  to  plaintiff's  agent, 
w^ho  acted  for  her  in  making  the  loan  for  which  the  note  was  given, 
and  that  the  fact  that  Brown  had  assumed  the  debts  of  the  firm  was 
also  known  to  this  agent,  who  recognized  Brown  as  the  principal  debtor 


182  PARTNERSHIP  LIABILITY 

by  treating  with  him  as  such  thereafter ;  that  on  June  18,  1902,  plain- 
tiff, through  her  agent,  agreed  with  Brown,  upon  a  sufficient  con- 
sideration, that  she  would  extend  the  time  of  payment  of  the  note 
sued  on  to  February  24,  1903 ;  that  this  extension  was  granted  with- 
out the  knowledge  or  consent  of  the  defendant.  The  plea  alleges  that 
by  reason  of  these  facts  the  defendant  became,  after  the  dissolutio:i 
of  the  firm,  merely  a  surety  for  Crown  upon  the  debts  of  the  firm 
which  he  had  assumed  to  pay;  and  that  the  extension  of  the  time  of 
payment  of  the  note  sued  on  without  the  defendant's  knowledge  or 
consent  released  him  from  all  liability  on  the  debt.  The  court  struck 
this  plea  on  oral  motion,  and  the  defendant  excepted. 

Cobb,  J.^i    It  is  well  settled  that,  where  a  partnership  is  dissolved  by 
the  retirement  of  one  of  the  members,  and  the  continuing  partner  as- 
sumes the  payment  of  the  debts  of  the  firm,  the  retiring  partner,  as 
between  himself  and  his  copartner,  is  no  longer  a  principal  debtor,  but 
merely  a  surety  for  the  latter  upon  the  debts  of  the  firm.    See  22  Am. 
&  Eng.  Enc.  L.  (2d  Ed.)  185 ;    Shumaker  on  Part.  p.  342 ;    1_  Bates 
on  Part.  §  532.     Some  disagreement  among  the  courts  has  arisen  in 
fixing  the  rights  of  creditors  after  dissolution  by  the  retirement  of 
one  member  and  the  assumption  of  the  debts  by  the  other.    Of  course, 
if  a  creditor  is  a  party  to  the  agreement  made  between  the  partners, 
he  will  be  bound  by  it,  and  must  deal  with  the  retiring  partner  as  a 
surety.    All  are  agreed  as  to  this.    The  difficulty  has  arisen  in  deter- 
mining whether  mere  knowledge  by  the  creditor  of  the  dissolution 
and  the  agreement  of  the  partners  would  require  him  to  deal  thereafter 
with  the  retiring  partner  as  a  surety  with  reference  to  past  transactions 
of  the  firm.    The  case  of  Oakeley  v.  Pasheller,  4  CI.  &  F.  207,  a  de- 
cision made  by  the  House  of  Lords  in  1836,  was  supposed  to  have 
held  that  mere  knowledge  of  these  things  by  the  creditor  would  re- 
quire him  to  treat  the  retiring  partner  as  a  surety,  and  that,  if  he  ex- 
tended the  time  of  payment  of  his  debt  without  the  retiring  partner's 
knowledge  or  consent,  he  would  be  released.    But  in  the  case  of  Swire 
V.  Redman,  L.  R.  1  Q-  B.  536,  Cockburn,  C.  J.,  shows  very  clearly 
that  the  House  of  Lords  did  not,  in  Oakeley  v.  Pasheller,  intend  to 
rule  as  was  supposed,  but  merely  to  hold  that  the  retiring  partner  would 
be  released  only  in  the  event  the  creditor  consented  to  the  arrangement 
between  the  partners.    Some  American  courts  have  followed  what  was 
supposed  to  be  the  ruling  in  Oakeley  v.  Pasheller,  and  others  have 
adopted  the  decision  in  Swire  v.  Redman,  which  was  to  the  effect  that 
something  more  than  mere  knowledge  on  the  part  of  the  creditor  is 
required — that  he  must  expressly  consent  to  the  arrangement  between 
the  partners  before  he  will  be  bound  by  it;    and  that  in  the  absence 
of  such  consent  he  can  deal  with  the  retiring  partner  as  a  principal 
debtor  and  as  an  active  partner  so  far  as  past  transactions  are  con^ 
cerned.    Cases  like  Swire  v.  Redman  proceed  on  the  theory  that  when 
a  creditor's  rights  once  become  fixed  by  contract  no  agreement  on 

*i  Part  of  the  opinion  is  omitted. 


LIABILITY   OF   EETIEINO   PAETNEB  183 

the  part  of  the  other  parties  to  tlie  contract  can  affect  those  rights  or 
change  their  relation  to  the  creditor  so  far  as  he  is  concerned ;  that 
it  is  wholly  immaterial  that  the  creditor  was  informed  of  such  an 
agreement;  that  the  partnership  still  continues  relatively  to  his  debt; 
and  that  any  arrangement  which  he  makes  with  the  continuing  partner 
in  behalf  of  the  partnership  will  be  binding  on  the  other.  The  other 
line  of  decisions  holds  that  whenever  the  relationship  of  principal  and 
surety  arises  between  partners  after  dissolution  and  the  assumption 
by  one  partner  of  the  debts  of  the  firm,  every  one  having  notice  of 
the  dissolution  and  the  agreement  between  them  is  bound  to  take 
notice  of  the  relationship  which  the  law  creates,  and  act  accordingly; 
that  while  a  creditor  holding  an  obligation  of  the  firm  may  regard  the 
retiring  partner  as  an  active  partner,  so  far  as  his  debt  is  concerned, 
as  long  as  he  does  nothing  to  affect  the  status  of  his  claim,  the  moment 
he,  with  knowledge  of  the  dissolution  and  the  agreement,  does  anything 
which  would  release  an  ordinary  surety,  the  retiring  partner  will  be 
entirely  released  from  his  obligation;  that  this  is  no  hardship  on  the 
creditor,  because  he  can  protect  himself  by  granting  no  indulgence  to 
the  continuing  partner,  who  has  become  alone  the  principal  debtor, 
or  doing  anything  without  the  retiring  partner's  consent  which  would 
affect  the  status  of  the  claim  to  the  prejudice  of  the  surety  partner. 
The  following  are  some  of  the  decisions  dealing  with  the  subject: 
Rawson  v.  Taylor,  30  Ohio  St.  389,  27  Am.  Rep.  46-i;  Gates  v. 
Hughes,  44  Wis.  332;  Millerd  v.  Thorn,  56  N.  Y.  402;  Ridgley  v. 
Robertson,  67  Mo.  App.  45 ;  Barber  v.  Gillson,  18  Nev.  89,  1  Pac.  452 ; 
Maier  v.  Canavan,  8  Daly  (N.  Y.)  272;  Johnson  v.  Young,  20  W. 
Va.  614;  WilHams  v.  Boyd,  75  Ind.  286;  Leithauser  v.  Baumeister, 
47  IMinn.  151,  49  N.  W.  6C0,  28  Am.  St.  Rep.  336;  Whittier  v.  Gould, 
8  Watts  (Pa.)  485;  Wilde  v.  Jenkins,  4  Paige  (N.  Y.)  481;  Thurber 
V.  Corbin,  51  Barb.  (N.  Y.)  215;  National  Cash  Register  Co.  v. 
Brown,  19  Mont.  200,  47  Pac.  995,  37  L.  R.  A.  515,  61  Am.  St.  Rep. 
498;  Smith  v.  Shelden,  35  Mich.  42,  24  Am.  Rep.  529.  *  *  *  Pre- 
vious decisions  of  this  court  have,  however,  settled  that  the  rule  to  be 
followed  in  this  state  is  the  one  supposed  to  have  been  announced  in 
Oakeley  v.  Pasheller.  *  *  ♦  The  extension  of  the  time  of  payment, 
under  the  circumstances  alleged  in  the  plea,  had  the  effect  of  releasing 
the  defendant ;  and  the  court  erred  in  striking  the  plea. 
Judgment  reversed. 


184  PARTNERSHIP  LIABILITY 


IX.  Termination    of    Partnership    Liability    in    Contract — Disso- 
lution ^^ 


LYON  et  al.  v.  JOHNSON  et  al. 
(Supreme  Court  of  Errors  of  Connecticut,  1S59.     28  Conn.  1.) 

Assumpsit  for  coal  sold  to  the  defendants  as  partners.  It  was 
claimed  in  defense  that  the  partnership  between  the  defendants  had 
been  previously  dissolved  and  sufficient  notice  of  the  dissolution  given. 

The  defendants,  Johnson  and  Signor,  previous  to  the  9th  day  of 
March,  1857,  had  been  in  partnership  in  the  town  of  Danbury  under 
the  name  of  R.  Johnson  &  Co.,  and  as  such  partners  had  in  the  fall 
of  1856  purchased  coal  of  the  plaintiffs,  who  also  did  business  in  Dan- 
bury  as  partners  under  the  name  of  Lyon  &  Burr.  On  the  9th  day  of 
March,  1857,  the  firm  was  dissolved,  and  the  business  was  thereafter 
carried  on  by  Signor  alone.  Notice  of  the  dissolution  was  published 
for  three  successive  weeks  in  the  Danbury  Times,  a  weekly  paper  pub- 
lished in  Danbury;  but  no  other  notice  was  given  to  the  plaintiffs.  In 
the  fall  of  1857  Signor  bought  a  quantity  of  coal  of  the  plaintiffs,  which 
they  sold  and  delivered  upon  the  credit  of  the  firm  of  R.  Johnson  &  Co., 
and  in  the  belief  that  he  bought  it  for  that  firm.  The  advertisement  of 
the  dissolution  of  the  partnership  of  the  defendants  was  inserted  in  the 
newspaper  next  after  an  advertisement  of  the  plaintiffs;  but  the  plain- 
tiffs did  not  take  the  paper,  and  had  not  seen  the  notice  of  the  dissolu- 
tion, and  had  no  knowledge  that  the  partnership  was  dissolved.  The 
sale  of  coal  by  the  plaintiffs  to  the  defendants  in  1856  was  the  only 
previous  dealing  of  the  firm  of  Lyon  &  Burr  with  the  defendants ;  but 
for  some  years  before  the  defendants  had  bought  coal  of  the  firm  of 
Lyon  &  Bates,  a  firm  of  which  the  plaintiff  Lyon  was  a  member,  and 
which  was  dissolved  in  the  summer  of  1856 ;  Bates  retiring  from  the 
business,  and  Lyon  forming  a  new  partnership  with  Burr,  who  had 
been  a  clerk  of  Lyon  &  Bates,  and  the  new  firm  taking  and  continuing 
the  business  of  the  former  firm. 

The  case  was  tried  in  the  superior  court  on  an  issue  closed  to  the 
court.  The  court  specially  found  the  above  facts  and  rendered  judg- 
ment thereon  for  the  plaintiffs.  The  defendants  thereupon  filed  a  mo- 
tion in  error  and  brought  the  record  before  this  court  for  revision. 

Butler,  J.  There  is  no  error  in  the  judgment  of  the  court  below, 
and  this  will  be  apparent  from  a  brief  statement  of  the  principles  ap- 
plicable to  the  case. 

By  the  constitution  of  a  general  partnership,  and  as  one  of  the  ele- 
ments of  it,  each  partner  is  vested  by  his  copartners  with  power  to 

22  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  79-83. 


TERMINATION    OF   LIABILITY    IN    CONTRACT  185 

contract  for  and  bind  the  firm  within  the  scope  of  the  partnership  busi- 
ness. Each  is  constituted  the  agent  of  all,  and  each  is  responsible  for 
the  acts  of  all. 

Once  existing,  and  publicly  known  to  exist,  the  continuance  of  the 
connection  will  be  presumed  by  the  public  till  the  contrary  appears. 
If  a  dissolution  takes  place  by  operation  of  law,  as  by  death  or  bank- 
ruptcy, no  notice  is  required.  The  operations  of  law  have  a  notoriety 
which  all  are  bound  to  regard.  But  a  dissolution  by  limitation,  or  the 
voluntary  and  mutual  assent  of  the  partners,  is  a  matter  of  private  ar- 
rangement, which  cannot  be  presumed  to  be  known  to  others  unless 
they  are  informed  of  it.  Until  such  information  is  given,  actually  or 
constructively,  therefore,  the  continuance  of  the  connection,  and  of 
the  powers  and  liabilities  of  each  partner,  may  well  be  presumed  by 
every  one  who  has  occasion  to  deal  with  either  on  account  of  the  firm. 
It  follows  upon  the  principles  of  justice  and  policy,  and  in  conformity 
with  the  perfectly  well  settled  rule  of  law,  that  upon  such  a  dissolu- 
tion of  the  partnership  a  retiring  partner,  who  wishes  to  do  justice  to 
others  and  terminate  his  own  responsibility,  is  under  the  obligation  to 
give  information  of  the  fact  to  all  who  have  dealt  or  are  dealing  with 
the  firm,  and  to  the  public  at  large,  with  whom  new  attempts  to  deal 
may  be  made.  It  is  equally  clear  that  the  notice  so  given  by  a  retiring 
partner  should  be  coextensive  with  the  obligation  assumed  and  as  par- 
ticular and  specific  as  can  be  reasonably  required  of  him  under  the 
circumstances  of  the  case.  He  knows  or  may  know  who  the  persons 
are  who  have  dealt  with  the  firm,  and  he  can,  without  unreasonable 
efifort,  give  each  of  them  actual  notice,  and  therefore  the  law  requires 
that  he  should  do  so.  He  cannot,  without  more  effort  or  expense 
than  can  reasonably  be  demanded  of  him,  give  actual  notice  to  every 
other  member  of  the  public,  and  therefore  the  law  does  not  require  it; 
but  it  does  require  him  to  discharge  his  obligation  if  he  would  termi- 
nate his  liability,  and  to  give  some,  and  reasonable,  notice  to  the  public 
at  large.  Ordinarily  a  publication  in  one  of  the  newspapers  published 
in  the  place  or  county  where  the  partnership  business  was  conducted, 
as  it  is  the  customary  mode  of  giving  such  information,  will,  as  to  all 
who  have  not  had  previous  dealings  with  the  firm,  be  deemed  sufficient. 
That  is  the  least  that  can  be  required  of  him  in  an  ordinary  case  in 
respect  to  the  public,  and  even  that  may  not  in  all  cases  be  sufficient, 
and  whether  it  be  or  not  will  depend  on  the  circumstances  of  the  par- 
ticular case.  But  in  relaxing  the  rule  as  applicable  to  those  who  have 
not  dealt  with  the  firm,  and  considering  a  general  notice,  operating  as 
a  constructive  notice,  to  be  sufficient  as  to  them,  because  of  the  diffi- 
culty of  giving  actual  notice  to  everybody,  the  courts  have  not  intended 
to  relax,  and  have  not  relaxed,  the  rule  in  respect  to  those  who  have 
dealt  with  the  firm.  As  to  them  there  is  no  reason  for  such  relaxa- 
tion, and  a  publication  is  never  sufficient,  unless,  indeed,  it  can  be 
shown  that  the  publication  was  seen  by  them,  and  therefore  that  they 
in  fact  had  actual  knowledge. 


186  PARTNERSHIP  LIABILITY 

In  this  case  the  dissolution  of  the  firm  of  R.  Johnson  &  Co,  was 
voluntary,  and  not  by  operation  of  law.  The  plaintiffs  had  previously 
dealt  with  the  firm,  and  upon  the  facts  found  they  may  well  be  consid- 
ered as  regular  dealers.  No  actual  notice  of  the  dissolution  was  given 
them,  and  it  is  found  that  they  had  no  actual  knowledge  of  it. 

The  publication,  unless  it  came  to  their  knowledge,  was  not  as  to 
them  suflicicnt.  The  character  of  their  previous  dealing  and  the  cir- 
cumstances attending  the  publication  of  the  notice,  including  the  con- 
tiguity of  the  advertisements,  were  proper  matters  of  evidence  to  be 
taken  into  consideration  by  the  court  in  the  question  whether  the  plain- 
tiffs actually  knew  of  the  dissolution  or  not.  Doubtless  the  court  con- 
sidered them.  But  having  found  that  no  actual  notice  was  given  to 
the  plaintiffs,  and  that  they  did  not  see  the  publication,  and  had  no 
actual  knowledge  of  the  dissolution,  and  that  there  had  been  previous 
dealing  between  the  parties,  the  court  correctly  rendered  judgment  for 
the  plaintiffs. 

The  judgment  of  the  superior  court  is  therefore  affirmed. 

Judgment  affirmed. 


AUSTIN  V.   HOLLAND. 
(Court  of  Appeals  of  New  York,  1877.    69  N.  Y.  571,  25  Am.  Dec.  246.) 

This  action  was  on  a  promissory  note  made  in  the  firm  name  of  Dil- 
lon, Beebe  &  Co.,  payable  to  Horace  Loveland.  Defendant  Holland 
alone  appeared  and  answered.  He  admitted  the  making  of  the  note, 
and  that  the  plaintiff  was  the  holder,  but  denied  that  he  was  a  member 
of  the  firm.  Defendants  were  copartners  under  the  above  firm  name 
prior  to  the  giving  of  the  note.  Judgment  for  the  plaintiff  on  the 
verdict  was  affirmed  at  the  General  Term  of  the  Supreme  Court,  and 
defendant  appealed. 

Andrews,  J.^^  The  plaintiff  was  a  dealer  with  the  firm  of  Dillon, 
Beebe  &  Co.,  so  as  to  entitle  him  to  the  protection  of  the  rule  which 
makes  a  retiring  partner  liable  for  subsequent  engagements  made  by 
his  former  copartner  in  the  firm  name  with  those  who  had  previous 
dealings  with  the  firm,  and  who  entered  into  the  new  transaction  with- 
out notice  of  the  change  in  the  partnership.  *    *    * 

The  principal  question  in  this  case  is  whether  Loveland  had  notice 
of  the  dissolution  of  the  firm  of  Dillon,  Beebe  &  Co.,  which  occurred 
March  29,  1869,  prior  to  August  31,  1869,  when  the  note  upon  which 
the  action  was  brought  was  made.  The  firm  was  engaged  in  the  busi- 
ness of  the  purchase,  shipment,  and  sale  of  lumber,  and  its  principal 
office  was  at  Toledo,  in  the  state  of  Ohio.  The  plaintiff  was  employed 
to  purchase  lumber  in  the  Western  States  and  in  Canada,  and  resided 
at  Detroit.  Notice  of  dissolution  was  published  in  the  newspapers  at 
Toledo,  and  a  copy  was  mailed  to  the  plaintiff,  addressed  to  him  at 
Detroit. 

2  3  Part  of  the  opinion  Is  omitted  and  the  statement  of  facts  is  abridged. 


TERMINATION    OF  LIABILITY   IN   CONTBACT  187 

Loveland,  on  his  direct  examination,  testified  positively  that  he 
never  received  the  notice.  On  his  cross-examination  he  stated  that  he 
had  no  recollection  of  receiving  or  seeing  the  notice,  and  that,  if  he 
had  seen  it,  he  thought  he  should  have  remembered  it.  The  judge 
submitted  it  to  the  jury  to  find  whether  the  plaintiff  received  the  no- 
tice. The  defendants'  counsel  excepted  to  the  submission  of  the  ques- 
tion to  the  jury,  on  the  ground  that  the  jury  would  not  be  justified 
in  finding  from  the  evidence  that  the  plaintiff  did  not  .receive  the  notice, 
and  upon  the  further  ground  that  it  was  immaterial  whether  he  re- 
ceived it  or  not;  that  the  mailing  of  the  notice  was  all  that  the  defend-' 
ant  was  required  to  do  to  protect  him  from  liability  for  the  subsequent 
services  of  the  plaintiff. 

The  publication  of  notice  of  the  dissolution  of  a  partnership  in  a 
newspaper  at  the  place  where  the  business  was  carried  on  is  notice  to 
all  persons  who  have  not  had  prior  dealings  with  the  firm ;  and,  if  there- 
after one  of  the  partners  enters  into  a  contract  in  the  firm  name  with 
a  new  customer  or  dealer,  the  other  partners  will  not  be  bound.  The 
rule  is  different  in  respect  to  persons  who  have  dealt  with  the  firm  be- 
fore the  dissolution.  The  rule  in  such  cases  in  this  state  requires  that, 
to  relieve  a  retiring  partner  from  subsequent  transactions  in  the  part- 
nership name,  notice  of  the  dissolution  must  be  brought  home  to  the 
person  giving  credit  to  the  partnership.  If  in  any  way,  by  actual 
notice  served,  or  by  seeing  the  publication  of  the  dissolution,  or  by 
information  derived  from  third  persons,  the  party,  at  the  time  of  the 
dealing,  is  made  aware  of  the  fact  that  the  partnership  has  been  dis- 
solved, the  contract  will  not  bind  the  firm.  It  is  sufficient  to  exempt 
the  firm  from  liability  that  the  person  so  contracting  with  a  partner  in 
the  firm  name  knew  or  had  reason  to  believe  that  the  partnership  had 
been  dissolved;  but  this  must  appear  and  be  found  by  the  jury,  or 
else  the  contract  will  be  treated  as  the  contract  of  the  partnership. 
Ketchum  v.  Clark,  6  Johns,  l-ll,  5  Am.  Dec.  197;  Graves  v.  jMerry, 
6  Cow,  701,  16  Am.  Dec.  471 ;  Vernon  v.  Manhattan  Co.,  17  Wend. 
524;  Id.,  22  Wend.  183;  National  Bank  v.  Norton,  1  Hill,  572;  Cod- 
dington  v.  Hunt,  6  Hill,  595 ;  Clapp  v.  Rogers,  12  N.  Y.  287;  City  Bank 
V.  McChesney,  20  N.  Y.  242 ;  Bank  of  Commonwealth  v.  Mudgett,  44 
N.  Y.  514;  Van  Eps  v.  Dillaye,  6  Barb.  244;  Mechanics'  Bank  v.  Liv- 
ingston, 33  Barb.  458.  In  Vernon  v.  Manhattan  Co.,  the  Chancellor 
says:  "But,  to  exempt  the  copartners  from  liability  (on  a  contract  with 
a  previous  dealer  with  the  firm),  the  jury  must  be  satisfied  that  the  per- 
son with  whom  the  new  debt  was  contracted  either  had  actual  notice 
that  the  copartnership  was  dissolved,  or  that  facts  had  actually  come  to 
his  knowledge  sufficient  to  create  a  belief  that  such  was  the  fact."  The 
same  rule  is  recognized  in  the  other  cases  cited,  and  by  elementary 
writers.  3  Kent's  Com.  607;  Story  on  Part.  §  161;  Coll.  on  Part.  § 
533;  Lindley  on  Part.  337.  Lindley  says:  "Those  who  have  dealt 
with  the  firm  before  a  change  took  place  are  entitled  to  assume,  until 
they  have  notice  to  the  contrary,  that  no  change  has  occurred.    *    *    * 


1S8  PARTNERSHIP  LIABILITY 

If  notice  in  point  of  fact  can  be  established,  it  matters  not  by  what 
means;  for  it  has  never  been  held  that  any  particular  formality  must 
be  observed."  In  this  case  the  jury  have  found  that  the  plaintiff  did 
not  receive  the  notice  sent  by  mail,  and  had  no  information  of  the 
dissolution  of  the  firm  of  Dillon,  Beebe  &  Co.  prior  to  the  transaction 
in  question.  The  mailing  of  notice  properly  directed  to  the  party  to 
be  charged  raises  a  presumption  of  notice  in  fact;  for  it  is  presumed 
that  letters  sent  by  post  to  a  party  at  his  residence  are  received  by 
him  in  due  course.  Best  on  Presumptions,  §  403.  But  this  is  a  pre- 
sumption of  fact,  and  not  of  law,  and  may  be  repelled  by  proof;  and 
if  the  receipt  of  the  letter  in  this  case  was  disproved,  then  the  defend- 
ant failed  to  show  the  actual  notice  required  in  order  to  exempt  him 
from  responsibility,  and  the  question  whether  the  letter  was  received 
was,  we  think,  upon  the  evidence  for  the  jury.  The  learned  counsel 
for  the  defendant  has  not  referred  us  to  any  case  which  decides  that 
the  mailing  of  a  notice  of  dissolution  is  in  law  equivalent  to  actual 
notice  and  exempts  a  retiring  partner  from  liability  to  prior  dealers 
on  subsequent  engagements  in  the  firm  name.  Notice  by  mail  of  the 
dishonor  of  commercial  paper  is  in  most  cases  sufficient  by  the  law 
merchant  to  charge  an  indorser.  It  is  a  part  of  the  contract  that  no- 
tice may  be  given  in  this  way,  and  it  is  not  material  in  fixing  the  lia- 
bility of  the  indorser  whether  he  receives  it  or  not. 

But  we  think  the  rule  requiring  actual  notice  of  the  dissolution  of 
a  partnership  to  prior  dealers  is  a  part  of  the  law  of  this  state  and 
should  not  be  departed  from.  It  may  subject  parties  in  some  cases 
to  inconvenience,  but  the  principle  upon  which  the  rule  proceeds  is 
that,  when  one  of  two  parties  is  to  sustain  injury  from  the  giving  of 
credit,  the  one  who  originally  induced  it  should  bear  the  loss,  rather 
than  the  one  who,  without  notice  of  the  change,  relied  upon  the  con- 
tinued existence  of  the  partnership.  Story  on  Part.  §  160;  Wat.  on 
Part.  384. 

The  judgment  of  the  General  Term  should  be  affirmed. 

Judgment  affirmed 


ROSE  et  al.  v.  COFFIELD. 
(Court  of  Appeals  of  Maryland,  1879.    53  Md.  18,  36  Am.  Rep.  389.) 

Miller,  J.^*  This  suit  was  brought  by  the  appellee  against  the  ap- 
pellants, Rose  and  Porter,  as  partners  composing  the  firm  of  J.  B. 
Rose  &  Co.,  upon  a  check  of  which  the  plaintiff  was  the  indorsee  and 
holder.  This  check  was  upon  the  Citizens'  National  Bank  for  $430, 
was  dated  the  29th  of  November,  1871,  and  was  payable  on  the  2d  of 
December  following.  It  was  drawn  by  Eastman  &  Rogers,  to  the  or- 
der of  J.  B.  Rose  &  Co.,  and  bears  the  indorsement  of  the  payees  and 
also  of  two  other  firms.    The  proof  shows  that  this  check  was  given 

24  Part  of  the  opinion  is  omitted. 


TERMINATION   OF   LIABILITY   IN   CONTEACT  189 

in  renewal  of  a  promissory  note  for  the  same  amount,  dated  the  27th 
of  October,  1871,  payable  one  month  after  date,  drawn  and  indorsed 
by  the  same  firms,  and  also  indorsed  by  another  firm.  The  plaintiff 
received  this  note  on  the  day  of  its  date  from  Rose  in  good  faith,  and 
paid  him  therefor  $130  in  cash.  He  also  received  the  check,  in  re- 
newal of  the  note,  on  the  day  of  its  date,  from  Rose,  who  then  in- 
dorsed the  name  of  J.  B.  Rose  &  Co.  thereon.  At  the  date  of  the 
note,  and  for  some  years  prior  thereto.  Rose  and  Porter  had  been 
partners,  conducting  the  printing  business  under  this  firm  name;  Rose 
being  the  active  business  manager  of  the  firm.  On  the  16th  of  No- 
vember, 1871,  after  the  date  of  the  note,  but  before  the  check  was 
given,  the  firm  was  dissolved,  and  notice  of  the  dissolution  published 
in  the  newspapers  of  Baltimore  city  for  several  days.  But  there  is  no 
proof  that  the  plaintiff  took  or  read  either  of  the  papers  in  which  this 
publication  was  made,  and  there  is,  therefore,  nothing  in  the  case 
bringing  home  to  him  actual  notice  of  the  dissolution,  or  affecting  him 
with  notice  thereof.  Boyd  v.  McCann,  10  Md.  118.  In  this-  state  of 
the  case  the  question  arises  whether  Porter  is  liable  upon  this  check ; 
the  firm  having  been  in  fact  dissolved  before  Rose  indorsed  the  firm's 
name  thereon.     *     *     * 

It  has  been  argued  with  much  force  that  the  plaintiff  had  but  a 
single  transaction  with  this  firm  before  its  dissolution,  which  con- 
sisted sim.ply  of  the  purchase  by  him  of  the  note  of  the  27th  of  Octo- 
ber, and  that  this  did  not  amount  to  such  dealing  with  the  firm  as  to 
entitle  him  to  actual  notice.  So  far  as  our  researches  have  extended, 
the  cases  in  which  this  question  has  been  considered  are  not  numer- 
ous, and  those  in  which  the  decisions  have  necessarily  turned  upon 
it  are  very  few.  It  is  certain  that  no  inflexible  rule  or  standard  of 
dealing,  by  which  all  cases  can  be  governed  or  measured,  has  been 
established. 

[After  reviewing  numerous  authorities:]  The  principle,  as  shown 
by  these  authorities,  upon  which  this  rule  of  actual  notice  is  founded, 
seems  to  embrace  the  present  case.  That  principle  is  that  credit  al- 
ready raised  on  the  faith  of  the  partnership  is  presumed  to  be  con- 
tinued on  the  same  footing,  unless  special  notice  of  a  change  be  given ; 
and  as  every  partner  knows,  or  has  the  means  of  knowing,  who  are 
the  persons  with  whom  his  firm  has  transacted  business  and  from 
whom  it  has  received  credit,  public  policy  and  natural  justice  alike 
demand  that  he  should  give  every  such  party  personal  and  special 
notice  of  the  withdrawal  of  his  responsibility.  As  was  said  by  the 
Chancellor,  in  Vernon  v.  Manhattan  Co.,  22  Wend.  (N.  Y.)  183,  the 
word  "dealing,"  when  used  in  reference  to  this  rule,  "is  merely  used 
as  a  general  term  to  convey  the  idea  that  the  person  who  is  entitled  to 
actual  notice  of  the  dissolution  must  be  one  who  has  had  business 
relations  with  the  firm,  by  which  a  credit  is  raised  upon  the  faith  of 
the  copartnership."  It  may  be  true,  as  was  most  forcibly  stated  by 
Senator  Verplanck  in  the  same  case,  that  one  who  merely  takes  the 


190  PARTNERSHIP  LIABILITY 

negotiable  paper  of  a  firm  from  a  third  hand,  and  received  payment 
through  a  bank,  or  passes  it  away  to  another,  cannot  be  called  a  dealer 
with  the  firm ;  and  it  may  well  be  said  that  it  would  be  to  require  im- 
possibilities to  insist  that  the  partners  of  a  large  commercial  house  in 
extensive  business  should  be  able  to  know  for  years  who  had  been 
the  last  holder  of  their  paper,  or  through  whose  hands  it  may  have 
passed,  and  to  send  to  all  of  them  special  notice  as  dealers.  But  the 
case  now  before  us  is  not  of  that  character,  and  no  such  difficulty 
arises.  The  plaintiff  received  the  note  of  October,  1871,  with  all  the 
subsequent  indorsements  then  upon  it,  directly  from  Rose,  one  of  the 
partners  of  this  firm,  then  subsisting,  and  paid  him  for  it  its  full  face 
value,  thus  bringing  the  plaintiff  and  the  firm  into  a  mutual  dealing. 
It  cannot  be  doubted  but  that  by  this  transaction  a  credit  was  raised 
upon  the  faith  of  the  partnership,  and  that  the  plaintiff  gave  them 
credit  and  relied  upon  the  united  responsibility  of  the  two  partners. 
Porter,  the  other  ostensible  and  known  partner,  knew,  or  had  the 
means  of  knowing,  through  whom  the  money  upon  this  note  was  rais- 
ed. The  plaintiff  dealt  in  this  transaction  immediately  and  directly 
with  the  firm,  and  did  not  receive  the  note  from  a  third  party  and 
merely  pass  it  away  to  another.  Nor  is  there  any  proof  to  show  that 
this  firm  was  a  great  commercial  house,  engaged  in  extensive  trade, 
and  constantly  issuing  their  negotiable  securities,  so  as  to  make  it  diffi- 
cult for  them  to  know  through  whose  hands  their  paper  may  have 
passed.  We  are  therefore  of  opinion  this  case  must  be  governed  by 
the  general  rule,  and  that  actual  notice  of  the  dissolution  should  have 
been  given  to  the  plaintiff  in  order  to  reUeve  the  defendant,  Porter, 
from  responsibility  on  this  check.  *  *  * 
Judgment  affirmed,  with  costs. 


THE  POWERS  OF  PARTNERS  191 

THE  POWERS  OF  PARTNERS 
I.  Origin  and  Nature  of  the  Partner's  Power  to  Bind  the  Firm  ' 


WINSHIP  et  al.  v.  BANK  OF  THE  UNITED  STATES. 
(Supreme  Court  of  the  United  States,  1831.     5  Pet.  552,  8  L.  Ed.  210.) 

Action  against  John  Winship,  Amos  Binney,  and  John  Binney,  co- 
partners trading  under  the  name  of  John  Winship,  on  several  promis- 
sory notes,  signed  by  John  Winship  as  indorser.  The  partnership 
articles  and  a  bond  given  by  said  Winship  to  the  Binneys  (construed 
as  a  part  of  the  partnership  agreement)  provided  for  a  partnership  be- 
tween the  Binneys  and  Winship  for  the  manufacture  of  soap  and 
candles,  and,  in  addition  to  prescribing  the  rights  and  duties  of  the  re- 
spective parties,  expressly  provided  that  the  "said  John  Winship  shall 
*  *  *  wholly  abstain  from  becoming  the  surety  or  indorser  of  any 
person."  At  the  trial  numerous  exceptions  were  taken  to  instructions 
given  to  the  jury.  Only  that  part  of  the  opinion  dealing  with  the  ex- 
ception to  the  third  instruction  is  given  here. 

A  verdict  was  found  for  the  plaintiffs,  and  judgment  entered  there- 
on, which  was  brought  up  for  review  by  writ  of  error. 

Marshall,  C.  j.*  *  *  *  The  third  instruction  asked  in  the 
Circuit  Court  goes  to  the  construction  of  the  articles  of  copartnership. 
The  plaintiff  in  error  contends  that  those  articles  gave  Winship  no 
authority  to  raise  money  on  the  credit  of  the  firm,  or  to  bind  it  by  his 
signature  for  the  purpose  of  borrowing  money. 

The  instruction  given  was  that,  if  the  particular  terms  of  the  articles 
were  unknown  to  the  public,  they  had  a  right  to  deal  with  the  firm,  in 
respect  to  the  business  thereof,  upon  the  general  principles  and  pre- 
sumptions of  limited  partnerships  of  a  like  nature,  and  that  any  special 
restrictions  did  not  affect  them ;  that  in  such  partnerships  it  was  within 
the  general  authority  of  the  partners  to  make  and  indorse  notes,  and 
to  obtain  advances  and  credits  for  the  business  and  benefit  of  the  firm, 
and,  if  such  was  the  general  usage  of  trade,  the  authority  must  be 
presumed  to  exist,  but  that  it  did  not  extend  to  transactions  beyond 
the  scope  and  object  of  the  copartnership;  that,  in  the  present  arti- 
cles, Winship  was,  in  effect,  constituted  the  active  partner,  and  has 
general  authority  to  transact  its  ordinary  business,  witii  persons  ignor- 
ant of  any  private  restriction,  to  the  same  extent  that  partners  in 
such  limited  partnerships  usually  possess, 

1  For  a  discussion  of  principles,  see  Gilniore  on  Partnership,  5§  84-90. 
«  Statement  of  facts  abridged  and  part  of  the  opinion  is  omitted. 


192  THE  POWERS  OP  PARTNERS 

The  amount  of  the  charge  is  that  if  Winship  and  the  two  Binneys 
composed  a  joint  company  for  carrying  on  the  soap  and  candle  busi- 
ness, of  which  Winship  was  the  acting  partner,  he  might  borrow  money 
for  the  business  on  the  credit  of  the  company,  in  the  manner  usually 
practiced  in  such  partnerships,  notwithstanding  any  secret  restriction 
on  his  powers  in  any  agreement  between  the  parties,  provided  such 
restriction  was  unknown  to  the  lender. 

The  counsel  for  the  plaintiff  in  error  has  objected  to  this  instruc- 
tion with  great  force  of  reasoning.  He  contends,  very  truly,  that  in 
fact  scarcely  any  unlimited  partnerships  exist.  They  are  more  or  less 
extensive.  They  may  extend  to  many  or  to  few  objects,  but  all  are 
in  some  degree  limited. 

That  the  liability  of  a  partner  arises  from  pledging  his  name  if  his 
name  is  introduced  into  the  firm,  or  from  receiving  profits  if  he  is  a 
secret  partner. 

No  man  can  be  pledged  but  by  himself.  If  he  is  to  be  bound  by 
another,  that  other  must  derive  authority  from  him.  The  power  of 
an  agent  is  limited  by  the  authority  given  him;  and,  if  he  transcends 
that  authority,  the  act  cannot  affect  his  principal.  He  acts  no  longer 
as  an  agent.  The  same  principle  applies  to  partners.  One  binds  the 
others  so  far  only  as  he  is  the  agent  of  the  others. 

If  the  truth  of  these  propositions  be  admitted,  yet  their  influence  on 
the  case  may  be  questioned.  Partnerships  for  commercial  purposes, 
for  trading  with  the  world,  for  buying  and  selling  from  and  to  a 
great  number  of  individuals,  are  necessarily  governed  by  many  gen- 
eral prmciples,  which  are  known  to  the  public,  which  subserve  the  pur- 
pose of  justice,  and  which  society  is  concerned  in  sustaining.  One  of 
these  is  that  a  man  who  shares  in  the  profits,  although  his  name  may 
not  be  in  the  firm,  is  responsible  for  all  its  debts.  Another,  more  ap- 
plicable to  the  subject  under  consideration,  is  that  a  partner,  certainly 
the  acting  partner,  has  power  to  transact  the  whole  business  of  the 
firm,  whatever  that  may  be,  and  consequently  to  bind  his  partners  in 
such  transactions  as  entirely  as  himself.  This  is  a  general  power,  es- 
sential to  the  well  conducting  of  business,  which  is  implied  in  the 
existence  of  a  partnership.  When,  then,  a  partnership  is  formed  for 
a  particular  purpose,  it  is  understood  to  be  in  itself  a  grant  of  power 
to  the  acting  members  of  the  company  to  transact  its  business  in  the 
usual  way.  If  that  business  be  to  buy  and  sell,  then  the  individual  buys 
and  sells  for  the  company,  and  every  person  with  whom  he  trades  in 
the  way  of  its  business  has  a  right  to  consider  him  as  the  company, 
whoever  may  compose  it.  It  is  usual  to  buy  and  sell  on  credit;  and, 
if  it  be  so,  the  partner  who  purchases  on  credit  in  the  name  of  the  firm 
must  bind  the  firm.  This  is  a  general  authority  held  out  to  the  world, 
to  which  the  world  has  a  right  to  trust.  The  articles  of  copartnership 
are,  perhaps,  never  published.  They  are  rarely,  if  ever,  seen,  except 
by  the  partners  themselves.  The  stipulations  they  may  contain  are  to 
regulate  the  conduct  and  rights  of  the  parties  as  between  themselves. 
The  trading  world,  with  whom  the  company  is  in  perpetual  intercourse, 


TEST  OF   AUTHORITY — NATURE   OF   QUESTION  193 

cannot  individually  examine  these  articles,  but  must  trust  to  the  gen- 
eral powers  contained  in  all  partnerships.  The  acting  partners  are 
identified  with  the  company,  and  have  power  to  conduct  its  usual  busi- 
ness in  the  usual  way.  This  power  is  conferred  by  entering  into  the 
partnership,  and  is  perhaps  never  to  be  found  in  the  articles.  If  it  is 
to  be  restrained,  fair  dealing  requires  that  the  restrictions  should  be 
made  known.  These  stipulations  may  bind  the  partners,  but  ought 
not  to  affect  those  to  whom  they  are  unknown,  and  who  trust  to  the 
general  and  well-established  commercial  law.  2  II.  Bl.  235;  17  Ves. 
412;  Gow  on  Part.  17.  *  ♦  * 
The  judgment  is  affirmed. 


II.  Test  of  Authority — Nature  of  Question  " 


POOLEY  et  al.  v.  WHITMORE. 
(Supreme  Court  of  Tennessee,  1873.    10  Heisk.  633,  27  Am.  Rep.  733.) 

Burton,  J.*  Pooley,  Barnum  &  Co.  sued  Edwin  Whitmore  &  Co. 
on  two  promissory  notes,  of  $185  each,  made  by  W.  A.  Whitmore 
payable  at  six  and  nine  months,  respectively,  to  the  order  of  "Whit. 
more  Bros.,"  and  indorsed  in  that  name.  Whitmore  Bros.,  a  firm  com- 
posed of  Edwin  Whitmore  and  the  said  W.  A.  Whitmore  were  part- 
ners in  publishing  the  Public  Ledger  newspaper  in  the  city  of  Mem- 
phis, and  also  conducted  a  general  job  printing  office  in  that  city.  The 
notes  in  suit,  however,  were  drawn  and  indorsed  by  W.  A.  Whitmore 
in  discharge  of  a  private  debt  that  he  owed  to  one  Cannon.  Edwin 
Whitmore  is  the  surviving  partner  of  the  firm,  and  puts  in  a  special 
plea  of  non  est  factum,  and  insists  that  the  firm  is  not  bound  to  pay, 
on  the  ground  that  it  is  not  a  partnership  debt.  Defendants  in  error 
reply  that  they  are  bona  fide  purchasers  for  value  of  the  note  in  due 
course  of  trade,  and  therefore  are  entitled  to  recover,  notwithstanding 
the  wrong  or  fraud  of  W.  A.  Whitmore  in  using  the  partnership  name 
in  a  personal  transaction. 

The  court  below  instructed  the  jury  that  "as  a  general  rule  one  part- 
ner is  not  liable  for  the  act  of  another  partner  not  within  the  scope  of 
the  partnership  business;  that  if  one  partner  sign  a  promissory  note 
or  other  negotiable  paper  in  the  firm  name,  without  the  knowledge  or 
consent  of  the  other  partner,  and  for  a  matter  not  within  the  scope  of 
the  partnership  business,  the  other  partner  will  not  be  liable,  unless  h< 
ratify  the  act,  or  unless  the  paper  get  into  the  hands  of  some  purchas- 
er before  maturity  who  had  no  knowledge  or  notice  of  the  considera- 
Hon  between  the  original  parties,  and  who  paid  a  valuable  consider?- 

»  For  a  discussion  of  principles,  see  Gilmore  on  Partnersliip,  §§  91-93. 
*  Opinion  of  Sneed,  J.,  is  omitted. 
Gilm.Part.— 13 


194  THE  POWERS  OF  PARTNERS 

tion  for  the  paper ;  that  such  a  person  would  be  an  innocent  holder  for 
value  and  without  notice." 

The  above  instructions  are  not  accurate,  without  important  quali- 
fications, and  were  certainly  calculated,  as  we  think,  to  mislead  the 
jury,  in  view  of  the  facts  of  this  case. 

Every  member  of  an  ordinary  partnership  is  its  general  agent  for 
the  transaction  of  its  business  in  the  ordinary  way,  and  the  firm  is 
held  responsible  for  whatever  is  done  by  any  of  its  partners,  when  act- 
ing for  the  firm,  within  the  limits  of  the  authority  conferred  by  the 
nature  of  the  business  it  carries  on.  Every  person  is  entitled  to  as- 
sume that  each  partner  is  empowered  to  do  for  the  firm  whatever  is 
necessary  for  the  transaction  of  its  business,  in  the  way  in  which  that 
business  is  ordinarily  carried  on  by  other  people.  But  no  person  is  en- 
titled to  assume  that  any  partner  has  more  extensive  authority  than 
that  above  described.  It  will  be  observed  that  what  is  necessary  to 
carry  on  the  partnership  business  in  the  ordinary  way  is  made  the  test 
of  an  authority  when  no  actual  authority  or  ratification  can  be  proved. 
This  is  conforming  to  the  most  recent  and  carefully  considered  deci- 
sions; but,  by  adopting  it,  the  liability  of  a  firm  for  the  acts  of  its  co- 
partners is  not  so  extensive  as  now  lawyers  sometimes  imagine. 

The  question  whether  a  given  act  can  or  cannot  be  necessary  to  the 
transaction  of  the  business  in  the  way  in  which  it  is  usually  carried  on 
must  evidently  be  determined  by  the  nature  of  the  business  and  by  the 
practice  of  persons  engaged  in  it.  Evidence  on  both  of  these  points 
is  necessarily  admissible,  and,  as  readily  may  be  conceived,  an  act 
which  is  necessary  for  the  prosecution  of  one  kind  of  business  may  be 
wholly  unnecessary  for  the  carrying  on  of  another  in  the  ordinary 
way.  Consequently  no  answer  of  any  value  can  be  given  to  the  ab- 
stract question,  can  one  partner  bind  his  firm  by  such  an  act?  unless, 
having  regard  to  what  is  usual  in  business,  it  can  be  predicated  of  the 
act  in  question  either  that  it  is  one  without  which  no  business  can  be 
carried  on  or  that  it  is  one  which  is  not  necessary  for  carrying  on  any 
business  whatever.  There  are  obviously  very  few  acts  of  which  such 
an  affirmation  can  be  truly  made.  The  great  majority  of  acts  which 
give  rise  to  doubt  are  those  which  are  necessary  in  one  business  and 
not  in  another.  Take,  for  example,  negotiable  instruments.  It  may 
be  necessary  for  one  member  of  a  firm  of  bankers  to  draw,  accept,  or 
indorse  a  bill  of  exchange  on  behalf  of  the  firm,  and  to  require  that 
each  member  should  put  his  name  to  it  would  be  ridiculous ;  but^  it 
by  no  means  follows,  nor  is  it  in  fact  true,  that  there  is  any  necessity 
for  one  of  several  solicitors  to  possess  a  similar  power,  for  it  is  no 
part  of  the  ordinary  business  of  a  solicitor  to  draw,  accept,  or  indorse 
bills  of  exchange.  The  question,  therefore,  can  one  partner  bind  the 
firm  by  accepting  bills  in  its  name?  admits  of  no  general  answer. 
The  nature  of  the  business  and  the  practice  of  those  who  carry  it  on 
(usage  or  custom  of  the  trade)  must  be  known  before  any  answer  can 
be  given.    Lindley  on  Partnership,  198-200.    It  is  further  said  by  the 


TEST   OF   AUTHOEITY — NATUEE   OF   QUESTION  195 

same  author :  "It  is  clearly  settled  that  any  member  of  an  ordinary 
trading  partnership  can  bind  the  firm  by  drawing  and  indorsing  prom- 
issory notes  in  its  name.  But,  in  respect  to  partnerships  which  are  not 
trading  partnerships,  the  question  whether  one  partner  has  any  im- 
plied authority  to  bind  his  copartners  by  putting  the  name  of  the  firm 
to  a  negotiable  instrument  depends  upon  whether  the  business  of  the 
partnership  is  such  that  dealings  in  negotiable  instruments  are  nec- 
essary for  its  transaction,  or  are  usual  in  partnerships  of  the  same  de- 
scription. In  the  absence  of  evidence  showing  necessity  or  usage,  the 
power  has  been  denied  to  one  of  several  mining  adventurers,  quarry 
workers,  farmers,  and  solicitors."    Id.  213,  214. 

The  foregoing  principles,  as  we  think,  have  been  fully  recognized 
by  this  court  in  Crosthwait  v.  Ross,  1  Humph.  23,  34  Am.  Dec.  C13, 
where  the  distinction  between  partners  in  trade  and  partners  in  occu- 
pation or  employment  is  taken,  and  the  power  of  the  former  class  to 
bind  the  firm  by  drawing  or  indorsing  notes  and  bills  is  sustained, 
while  it  is  denied  to  the  latter  class.  It  is  there  held  that  one  partner 
in  the  practice  of  physic  could  not  bind  the  firm  by  drawing  a  bill  or 
making  a  note  on  which  to  raise  money,  because  it  was  not  within  the 
scope  of  their  partnership,  and  it  was  distinctly  holden  that  the  power 
to  raise  money  was  not  one  of  the  implied  powers  resulting  from  such 
an  association.  By  recurring  to  the  instructions  given  by  the  court 
below  in  this  case,  it  will  be  seen  that  this  important  distinction  be- 
tween strictly  commercial  or  trading  partnerships  and  partnerships  in 
occupation  is  entirely  ignored,  and  we  think  it  was  the  duty  of  the 
court  to  point  out  the  distinction,  for  prima  facie  it  cannot  be  said 
that  one  partner  in  a  printing  office  would  have  the  implied  power  to 
bind  the  firm  by  drawing  or  indorsing  a  note.  In  this  case,  to  be  sure, 
there  was  some  evidence  of  the  usage  of  this  firm  to  deal  in  commer- 
cial paper;  but  there  was  also  evidence  tending  to  the  contrary  conclu- 
sion. The  consequence  of  this  distinction  between  trading  and  non- 
trading  partnerships  is  very  important  in  reference  to  the  main  de- 
fense to  be  relied  upon  in  this  case.  If  a  partner  in  a  banking  firm, 
for  instance,  should  indorse  a  bill  or  note  for  his  private  debt,  and  it 
should  get  into  the  hands  of  a  bona  fide  holder  without  notice,  his 
firm  would  be  bound  by  it.  The  indorsing  or  making  of  such  paper 
being  the  usual  mode  of  conducting  that  business,  the  public  have  a 
right  to  suppose  that  each  partner  is  empowered  to  accept  or  indorse  for 
the  firm,  and  are  not  bound  to  inquire  whether  in  a  given  instance  the  act 
was  done  with  the  assent  of  his  copartners.  But  not  so  with  a  part- 
nership occupation  merely,  whose  business  does  not  ordinarily  require 
dealing  in  commercial  paper.  One  who  becomes  a  member  of  such 
a  firm  does  not  confer  implied  power  on  his  copartners  to  bind  him  by 
dealing  in  bills  or  notes.  He  is  not  clothed  with  apparent  power  so 
to  bind  his  firm,  and  no  person  dealing  with  tlie  firm  has  the  right  to 
suppose  that  the  powers  of  one  member  are  more  extensive  than  is 
implied  by  the  ordinary  mode  of  conducting  such  business.  If  two 
persons  are  associated  in  the  practice  of  law,  and  one  of  them,  without 


196  THE  POWERS  OP  PARTNERS 

or  against  the  consent  oi  the  other,  should  indorse  a  note  or  bill  for 
his  private  purpose,  no  one  buying  such  bill  could  succeed  on  the  plea 
that  he  was  a  bona  fide  holder  without  notice,  for  the  reason  that  by 
forming  such  an  association  the  several  partners  do  not  hold  each  oth- 
er out  to  the  world  as  empowered  to  use  their  names  as  makers  or  in- 
dorsers  of  negotiable  paper. 

The  rules  in  regard  to  notice  to  a  purchaser  are  very  accurately 
laid  down  in  our  own  cases,  digested  in  Heiskcll,  and  contain  a  much 
more  accurate  statement  of  the  law  upon  the  subject  than  is  contain- 
ed in  this  charge,  and  one  much  more  applicable  to  the  facts  of  the 
case. 

Our  conclusion  is  that  the  charge  of  the  court  in  reference  to  the 
facts  of  this  case,  if  it  does  not  amount  to  a  positive  misstatement  of 
the  law,  was  calculated  to  mislead  the  jury,  and  that  the  appellant  is 
entitled  to  a  new  trial,  although  he  failed  to  ask  further  instructions 
to  the  jury. 

On  hearing  this  cause  at  a  former  term,  the  court  decided  to  grant 
a  new  trial,  and  it  is  now  before  us  on  application  to  reconsider  the 
conclusion  at  which  the  court  then  arrived. 

On  a  reconsideration  of  the  case,  we  adhere  to  our  former  opinion, 
and  reverse  the  judgment  of  the  municipal  court,  and  remand  the  cause 
for  a  new  trial  in  accordance  with  the  principles  herein  announced. 


IRWIN  V.  WILLIAR  et  al. 

(Supreme  Court  of  the  United  States,  1883.    110  U.  S.  499,  4  Sup.  Ct  160,  28 

L.  Ed.  225.) 

The  defendants  in  error  were  plaintiffs  below,  and  brought  this  ac- 
tion against  the  plaintiff  in  error,  as  surviving  partner  of  the  firm  of 
Irwin  &  Davis,  to  recover  a  balance  alleged  to  be  due,  growing  out  of 
certain  sales  of  wheat  for  future  delivery,  claimed  to  have  been  made 
by  the  defendants  in  error  for  the  firm  of  Irwin  &  Davis  upon  their 
order.  The  hability  of  the  plaintiff  in  error  was  denied  on  two 
grounds:  (1)  That  the  transactions  were  made  by  Davis,  the  deceased 
partner,  without-  the  knowledge,  assent,  or  authority  of  the  plaintiff 
in  error,  and  were  not  within  the  scope  of  the  partnership  business; 
and  (3)  that  the  sales  were  wagering  contracts  and  void. 

[The  bill  of  exceptions,  stating  the  evidence,  and  the  charge  given 
to  the  jury,  is  omitted.] 

Matthews,  J."^  The  proposition  contained  in  this  charge  is  that 
the  business  of  dealing  in  grain,  no  matter  how  much  it  may  be  re- 
stricted by  agreement  between  the  partners,  and  no  matter  how  it  may 
have  been  qualified  by  the  actual  practice  of  the  firm,  necessarily  au- 
thorizes each  partner  to  bind  the  others  by  unknown  contracts  in  dis- 
tant markets  for  unlimited  sales  and  purchases  of  grain  for  future  de- 

»  Part  of  the  opinion  is  omitted. 


TEST   OF   AUTHOEITY — NATURE    OF   QUESTION  197 

livery.  And  so  the  jury  must  have  understood  it;  for  they  were  told 
that,  "if  Irwin  permitted  Davis  to  hold  himself  and  Irwin  out  to  the 
world  as  partners  in  the  business  of  dealing  in  grain,  he  became  li- 
able with  Davis  on  contracts  for  the  sale  and  purchase  of  grain  for 
future  delivery,  and  in  that  case  it  is  not  material  that  Irwin  should 
have  actual  knowledge  of  particular  sales  or  purchases  in  the  firm 
name,"  and  "if  Davis,  as  partner,  did  in  fact  buy  and  sell  grain,  and 
if,  in  his  correspondence  with  customers  and  others,  including  the 
plaintiffs,  he  employed  printed  letter  heads  or  cards  representing  the 
firm  of  Irwin  &  Davis  as  grain  dealers,  this  was  a  holding  out  of  that 
firm  as  a  partnership  engaged  in  that  business,"  and  "if,  therefore, 
you  believe  from  the  evidence  that  Irwin  &  Davis  held  themselves  out 
as  dealers  in  grain,  as  well  as  in  flour,  and  that  the  plaintiffs  dealt 
with  Davis,  supposing  they  were  dealing  with  the  firm,"  etc.,  "you 
should  find  for  the  plaintiffs,"  etc.  This  was  equivalent  to  directing 
the  jury  to  find  a  verdict  for  the  plaintiffs  in  the  action,  for  the  only 
facts  to  which  their  attention  was  directed  as  material  were  not  disput- 
ed, viz.,  that  the  firm  had  been  in  the  habit  of  buying  and  selling  grain, 
and  had  constantly  used  letter  heads  describing  themselves  as  dealers 
in  grain. 

In  this,  we  think,  there  was  error.  The  liability  of  one  partner  for 
acts  and  contracts  done  and  made  by  his  copartners,  without  his  actual 
knowledge  or  assent,  is  a  question  of  agency.  If  the  authority  is  de- 
nied by  the  actual  agreement  between  the  partners,  with  notice  to  the 
party  who  claims  under  it,  there  is  no  partnership  obligation.  If  the 
contract  of  partnership  is  silent,  or  the  party  with  whom  the  dealing 
has  taken  place  has  no  notice  of  its  limitations,  the  authority  for  each 
transaction  may  be  implied  from  the  nature  of  the  business  according 
to  the  usual  and  ordinary  course  in  which  it  is  carried  on  by  those  en- 
gaged in  it  in  the  locality  which  is  its  seat,  or  as  reasonably  necessary 
or  fit  for  its  successful  prosecution.  If  it  cannot  be  found  in  that,  it 
may  still  be  inferred  from  the  actual,  though  exceptional,  course  and 
conduct  of  the  business  of  the  partnership  itself,  as  personally  carried 
on  with  the  knowledge,  actual  or  presumed,  of  the  partner  sought  to  be 
charged. 

In  the  present  case  the  partnership  agreement  cannot  affect  the 
question,  because  it  is  not  claimed,  on  the  one  hand,  that  it  conferred 
actual  authority  to  make  the  transactions  in  dispute,  nor,  on  the  other 
hand,  that  the  defendants  in  error  had  any  notice  of  its  limitations. 

And  so,  too,  any  implication  that  might  have  arisen  from  a  previous 
course  of  business  of  this  character,  carried  on  by  Davis  with  the 
knowledge  of  Irwin,  must  be  rejected;  for  it  is  not  claimed  that  any 
foundation  in  proof  existed  for  it. 

The  only  remaining  ground  for  the  implied  authority  by  which  it 
can  be  claimed  that  Irwin  was  bound  by  the  contracts  of  his  partner 
is  that  arising  from  the  intrinsic  nature  of  the  business  in  which  the 


198  TDB   POWERS  OF  PARTNERS 

partnership  was  actually  engaged,  or  from  the  usual  and  ordinary 
course  of  conducting  it  at  the  locality  where  it  was  carried  on. 

What  the  nature  of  that  business  in  each  case  is,  what  is  necessary 
and  proper  to  its  successful  prosecution,  what  is  involved  in  the  usual 
and  ordinary  course  of  its  management  by  those  engaged  in  it,  at  the 
place  and  time  where  it  is  carried  on,  are  all  questions  of  fact  to  be 
decided  by  the  jury,  from  a  consideration  of  all  the  circumstances 
which,  singly  or  in  combination,  affect  its  character  or  determine  its 
peculiarities;  and  from  them  all,  giving  to  each  its  due  weight,  it  is 
its  province  to  ascertain  and  say  whether  the  transaction  in  question 
is  one  which  those  dealing  with  the  firm  had  reason  to  believe  was  au- 
thorized by  all  its  members.  The  difficulty  and  duty  of  drawing  the 
inference  suitable  to  each  case  from  all  its  circumstances  cannot  be 
avoided  or  supplied  by  affixing  or  ascribing  to  the  business  some  gen- 
eral name,  and  deducing  from  that,  as  a  matter  of  law,  the  rights  of 
the  public  and  the  duties  of  the  partners.  Dealing  in  grain  is  not  a 
technical  phrase  from  which  a  court  can  properly  infer  as  matter  of 
law  authority  to  bind  the  firm  in  every  case,  irrespective  of  its  circum- 
stances; and  if,  by  usage,  it  has  acquired  a  fixed  and  definite  mean- 
ing, as  a  word  of  art  in  trade,  that  is  matter  of  fact  to  be  established 
by  proof  found  by  a  jury.     *     *     * 

As  the  judgment  now  under  review  would  have  to  be  reversed  for 
the  error  just  pointed  out,  it  is  not  necessary,  for  the  purpose  of  dis- 
posing of  the  present  writ  of  error,  to  proceed  further  to  examine 
other  assignments ;  but  as  the  case  must  be  remanded  for  a  new  trial, 
in  which  the  remaining  questions  may  again  arise,  it  seems  appropri- 
ate now  to  dispose  also  of  them.     *     *     * 

The  judgment  of  the  circuit  court  is  therefore  reversed,  with  direc- 
tions to  grant  a  new  trial ;  and  it  is  so  ordered. 


III.  Particular  Powers  Considered* 


BOND  V.  GIBSON  et  al. 
(At  Nisi  Prlus,  before  Lord  Ellenborough,  C.  J.,  1808.    1  Camp.  185.) 

Assumpsit  for  goods  sold  and  delivered.  It  appeared  that,  while 
the  defendants  were  carrying  on  the  trade  of  harness  makers  together, 
Jephson  bought  of  the  plaintiff  a  great  number  of  bits  to  be  made  up 
into  bridles,  which  he  carried  away  himself;  but  that,  instead  of  bring- 
ing them  to  the  shop  of  himself  and  his  copartner,  he  immediately 
pawned  them  to  raise  money  for  his  own  use. 

Gazelee,  for  the  defendant  Gibson,  contended  that  this  could  not  be 
considered  a  partnership  debt,  as  the  goods  had  not  been  bought  on 

«  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  94-108. 


tAKTICULAR   POWERS   CONSIDERED  199 

the  partnership  account,  and  the  credit  appeared  to  have  been  given  to 
Jephson  only.  He  allowed  the  case  would  have  been  different,  had 
the  goods  once  been  mixed  with  the  partnership  stock,  or  if  proof  had 
been  given  of  former  dealings  upon  credit  between  the  plaintiff  and 
the  defendants. 

Lord  Ellenborough.  Unless  the  seller  is  guilty  of  collusion,  a 
sale  to  one  partner  is  a  sale  to  the  partnership,  with  whatever  view  the 
goods  may  be  bought,  and  to  whatever  purposes  they  may  be  applied. 
I  will  take  it  that  Jephson  here  meant  to  cheat  his  copartner;  still  the 
seller  is  not  on  that  account  to  suffer.  He  is  innocent;  and  he  had  a 
right  to  suppose  that  this  individual  acted  for  the  partnership. 

Verdict  for  the  plaintiff. 


LEFFLER  et  al.  v.  RICE. 
(Supreme  Court  of  Indiana,  1873.    44  Ind.  103.) 

Downey,  C.  J.^  The  appellee  sued  the  appellants  for  work  and  la- 
bor, for  money  loaned,  for  money  had  and  received,  for  board  and 
lodging,  and  for  wood,  provisions,  and  merchandise,  a  bill  of  particu- 
lars of  which  was  filed  with  the  complaint.  The  defendants  answered 
in  three  paragraphs:  (1)  A  general  denial.  (2)  Payment.  (3)  Set- 
off, Reply  in  denial  of  the  second  and  third  paragraphs  of  the  an- 
swer. Trial  by  the  court,  finding  for  the  plaintiff,  motion  for  a  new 
trial  overruled,  and  final  judgment  for  the  plaintiff.     *     *     * 

It  is  urged  as  a  question  of  law  that  Rice,  one  of  the  defendants, 
could  not  bind  Leffiler,  his  partner,  for  the  items  in  question,  for  the 
reason  that  they  were  foreign  to  the  business  of  the  firm.  Two  of 
the  items  claimed  by  the  appellee  were  for  money  loaned,  one  was  for 
money  paid  for  middlings,  and  one  was  for  services  in  the  purchase 
of  grain,  etc.  The  business  of  the  defendants  was  that  of  milling.  We 
do  not  see  that  the  items  of  indebtedness  are  such  as  might  not  prop- 
erly and  reasonably  have  accrued  in  connection  with  the  business.  We 
are  aware  of  the  rule  of  law,  stated  by  the  counsel  for  appellants,  that 
where  a  person  takes  a  security  from  one  partner  in  the  name  of  the 
partnership,  in  a  transaction  not  in  the  usual  course  of  dealing,  he 
takes  the  security  at  his  peril.  Money  may  properly  be  borrowed  by  a 
partner  to  be  used  in  the  business  of  milling  by  the  firm.  The  evi- 
dence of  the  plaintiff  tends  to  show  that  the  middlings  in  question  were 
purchased  to  be  ground  over  at  the  mill  of  the  defendants,  which 
would  seem  to  be  properly  connected  with  the  business  of  milling; 
and  as  to  the  compensation  for  purchasing  grain  for  the  mill  tliere  can- 
not well  be  any  question.     *     *     ♦ 

The  judgment  is  affirmed. 

T  Part  of  the  opinion  is  omitted. 


200  THE  POWERS  OF  PARTNERS 

DUNCAN  V.  LOWNDES  et  al. 
(At  Nisi  Prius,  before  Lord  Ellenborough,  C.  J.,  1813.    3  Camp,  478.) 

This  was  an  action  on  a  guaranty  alleged  to  have  been  given  by  the 
defendants  for  the  due  payment  of  a  bill  of  exchange  to  the  plaintiff 
for  £6T0  15s.,  accepted  by  Dickinson  &  Co.,  for  the  price  of  goods 
which  the  plaintiff  had  sold  them. 

It  appeared  that  the  two  defendants  carried  on  business  together 
as  merchants  at  Liverpool,  and  that  this  guaranty  was  signed  by 
Lowndes  in  the  partnership  firm. 

Lord  Ellenborough.*  As  it  is  not  usual  for  merchants,  in  the  com- 
mon course  of  business,  to  give  collateral  engagements  of  this  sort, 
I  think  you  must  prove  that  Lowndes  had  authority  from  Bateson  to 
sign  the  partnership  firm  to  the  guaranty  in  question.  It  is  not  inci- 
dental to  the  general  power  of  a  partner  to  bind  his  copartners  by  such 
an  instrument.     *     *     * 

The  plaintiff,  however,  was  not  prepared  with  any  evidence  to  af- 
fect Bateson,  and  submitted  to  be  nonsuited. 


ROLLINS  V.  STEVENS  et  al. 

(Supreme  Court  of  Maine,  1850.    31  Me.  454.) 

Assumpsit  upon  a  promissory  note.  The  defendants  were  defaulted 
by  consent,  subject  to  the  opinion  of  the  court  as  to  their  liability. 
The  note  was  signed:  "John  O.  P.  Stevens,  Principal.  W.  &  H. 
Stevens,  Sureties." 

William  Stevens  and  Hiram  Stevens  were  copartners  in  navigation 
and  business  of  commerce,  under  the  style  of  W.  &  H.  Stevens.  Their 
company  name  was  affixed  to  the  note,  in  the  form  above  stated,  by 
Hiram  Stevens. 

Wells,  J.  It  appeared  by  the  evidence  that  Hiram  Stevens  signed 
the  name  of  the  firm,  consisting  of  himself  and  William  Stevens,  to 
the  note  in  suit  as  sureties  for  the  other  maker.  One  partner  has  no 
authority  thus  to  use  the  name  of  the  firm,  out  of  the  scope  of  the  co- 
partnership business,  unless  the  consent  or  subsequent  ratification  of 
the  other  is  obtained.  The  note,  on  its  face,  indicates  that  it  was  given 
for  the  debt  of  the  principal,  and  not  for  the  debt  of  the  firm.  And 
the  burden  of  proving  such  consent  or  ratification  rests  on  the  plain- 
tiff. The  plaintiff's  intestate  could  not  claim  to  be  an  innocent  holder, 
without  the  knowledge  of  such  want  of  authority;  for  the  form  of 
the  contract  was  information  to  him  that  the  firm  had  no  interest  in 
it,  they  being  partners  in  navigation  and  the  business  of  commerce. 
Bayley  on  Bills,  58;  Manufacturers'  &  Mechanics'  Bank  v.  Winship, 
5  Pick.  (Mass.)  11,  16  Am.  Dec.  369;    3  Kent's  Com.  47;    Gow  on 

8  Part  of  opinion  and  arguments  of  counsel  omitted. 


PAETICULAR   POWERS   CONSIDERED  201 

Partnership,   58;    Foot  v.   Sabin,   19   Johns.    (N.   Y.)    154,   10   Am. 
Dec.  208. 

According  to  the  agreement  of  the  parties,  the  default  as  to  VVilliara 
Stevens  is  to  be  taken  ol'f,  and  the  action  to  stand  lur  trial. 


MORGAN  et  al.  v.  RICHARDSON. 
(Supreme  Court  of  Missouri,  1852.    IG  Mo.  409,  57  Am.  Dec.  235.) 

Scott,  J.  This  was  a  proceeding  to  set  aside  a  judgment  and  execu- 
tion thereon,  confessed  in  vacation,  in  the  name  of  A.  &  J.  M.  Rich- 
ardson, to  the  appellants,  under  the  twenty-second  article  of  the  new 
Code  of  Practice.  Achilles  and  J.  M.  Richardson  were  partners  in 
trade,  and  indebted  to  the  appellants  for  merchandise.  The  indebted- 
ness was  evidenced  by  a  promissory  note,  executed  in  the  name  of  the 
firm.  The  confession  was  authorized  by  J.  M.  Richardson  alone, -and 
after  the  dissolution  of  the  partnership  between  him  and  Achilles  Rich- 
ardson. The  execution  was  levied  on  goods  belonging  to  A.  Richard- 
son. The  court  below  set  aside  the  judgment  against  A.  Richardson, 
and  quashed  the  execution. 

1.  The  facts  in  this  case  stand  admitted  by  the  demurrer  to  the  peti- 
tion, and  we  are  at  a  loss  to  conceive  the  ground  upon  which  the  pro- 
ceeding can  be  sustained  against  A.  Richardson.  The  case  of  Green 
V.  Beals,  2  Caines  (N.  Y.)  254,  is  an  authority  to  show  that  the  judg- 
ment confessed  by  J.  M.  Richardson  was  void  as  to  A.  Richardson. 
The  cases  of  Motteux  v.  St.  Aubin,  2  W.  Bl.  1133,  and  Denton  v. 
Noyes,  6  Johns.  (N.  Y.)  296,  5  Am.  Dec.  237,  are  not  applicable  to 
the  circumstances  of  this  case.  It  cannot  be  maintained  that  a  part- 
ner, either  before  or  after  the  dissolution  of  the  copartnership,  has 
authority  to  confess  a  judgment  for  his  copartner.  The  authorities 
are  abundant  to  show  that  one  partner  cannot  confess  a  judgment 
which  will  bind  his  copartner.  Crane  v.  French,  1  Wend.  (N.  Y.) 
311;  McBride  v.  Hagan,  1  Wend.  (N.  Y.)  327.  We  can  see  no  dif- 
ference in  principle  between  setting  aside  the  judgment  and  restrain- 
ing an  execution  upon  it,  as  either  mode  of  action  is  based  upon  the 
nullity  of  the  proceeding,  which  is  not  permitted  to  be  used  as  a 
foundation  for  any  future  action  against  the  party  for  whom  it  has 
been  unwarrantedly  entered. 

It  does  not  appear  that  the  judgment  against  J.  M.  Richardson  has 
been  vacated,  nor  will  we  interfere  with  it.  The  other  judges  con- 
curring, the  judgment  below  will  be  affirmed. 


202  THE  POWERS  OF  PARTNERS 

ROTHWELL  v.  HUMPHREYS  et  al. 
(At  Nisi  Prius,  before  Lord  Keuyon.  C.  J.,  1795.    1  Esp.  406.) 

Assumpsit  for  money  lent.  Plea  of  the  general  issue.  The  defend- 
ants were  partners,  linen  drapers,  in  London.  The  plaintiff  was  a 
fustian  manufacturer  at  Manchester.  Howell,  one  of  the  defendants, 
had  gone  down  to  Manchester  to  purchase  goods  in  the  way  of  his 
trade,  and  had,  in  fact,  purchased  from  the  plaintiff  to  the  amount  of 
ioOO.  Being  about  to  return,  he  borrowed  £10  from  the  plaintiff'  to 
defray  his  expenses  to  London;  and,  having  drawn  a  bill  on  the  house 
in  London  for  the  amount  of  the  goods,  he  included  in  it  the  £10  so 
borrowed,  and  the  bill  was  drawn  for  £510.  Before  the  arrival  of  the 
goods  in  London,  Humphreys  and  Howell,  the  defendants,  became  in- 
solvent, and  the  plaintiff'  stopped  the  goods  in  transitu,  so  that  the  bill 
was  never  presented;  and  the  action  was  brought  to  recover  the  £10 
lent  only.  These  facts  were  proved  by  a  witness  called  by  the  plain- 
tiff'. The  defense  relied  upon  was  that  the  action  was  brought  against 
both  partners  for  a  loan  of  money,  admitted  by  the  evidence  to  have 
been  made  to  one  of  them,  and  which,  therefore,  could  not  be  sup- 
ported. 

Lord  Kenyon  said  that,  though  the  loan  of  money  was  to  one  of 
the  partners,  it  was  lent  to  him  while  employed  on  the  partnership 
business  and  on  its  account;  that  as  such  it  was  competent  to  him  to 
bind  the  partnership  to  the  payment  of  a  debt  so  contracted,  and  which, 
in  fact,  he  had  done,  by  including  the  money  lent  in  the  same  bill  with 
that  for  goods  sold  clearly  on  the  partnership  account. 

Verdict  for  the  plaintiff. 


HEDLEY  V.   BAINBRIDGE   et   al. 
(Court  of  Queen's  Bench,  1842.    3  Q.  B.  316.) 

Assumpsit  on  a  promissory  note  made  by  defendant,  payable  to 
plaintiff  on  demand.  Defendant  denied  making  the  note.  Plaintiff 
nonsuited.  A  rule  nisi  granted  to  show  cause  why  verdict  should  not 
be  entered  for  plaintiff. 

Lord  Denman,  C.  J.*  The  defendant  and  a  Mr.  Spurrier  were  in 
partnership  as  attorneys.  A  sum  of  money  was  deposited  with  Mr. 
Spurrier  by  the  plaintiff,  a  client  of  the  firm,  to  be  laid  out  on  a  mort- 
gage; and  he  gave  the  plaintiff  the  promissory  note  of  the  firm  for 
the  amount.  The  question  is  whether,  under  those  circumstances, 
Spurrier  had  power  to  bind  the  firm  by  such  note.  No  doubt  a  debt 
was  due  from  the  firm;  but  it  does  not  follow  that  one  partner  had 
authority  to  give  a  promissory  note  for  that  debt.  Partners  in  trade 
have  authority,  as  regards  third  persons,  to  bind  the  firm  by  bills  of 
exchange,  for  it  is  in  the  usual  course  of  mercantile  transactions  so 

»  Part  of  the  opinion  is  omitted  and  statement  of  facts  is  abridged. 


PAETICULAB   POWEES   CONSIDEKED  203 

to  do;  and  this  authority  is  by  the  custom  and  law  of  merchants, 
which  is  part  of  the  general  law  of  the  land.  But  the  same  reason 
does  not  apj^ly  to  other  parmcrships.  There  is  no  custom  or  usage 
that  attorneys  should  be  parties  to  negotiable  instruments;  nor  is  it 
necessary  for  the  purposes  of  their  business.  *  *  ♦  Upon  the  whole 
we  think  that  the  implied  authority  is  confined  to  partners  in  trade,  and 
that  the  nonsuit  in  this  case  was  right.  *  *  * 
Rule  discharged. 


PEASE  V.  COLE. 

(Supreme  Court  of  Errors  of  Connecticut,  1SS5.    53  Conn.  53,  22  Atl.  681,  55 

Am.  Rep.  53.) 

LooMis,  J.^"  The  question  involved  in  this  case  is  whether  one  mem- 
ber of  a  copartnership  formed  for  the  purpose  of  conducting  a  theater 
in  Hartford  could,  under  the  circumstances  mentioned  in  the  finding, 
bind  the  other  member  by  executing  a  negotiable  promissory  note  in 
the  name  of  the  firm  for  money  borrowed.  The  finding,  in  terms,  ex- 
cludes all  express  authority  of  the  other  partner,  and  even  all  knowl- 
edge of  the  matter  on  his  part.  So  that  any  conclusion  that  the  note 
is  the  note  of  the  firm,  rather  than  of  the  member  executing  it,  must 
necessarily  rest  on  an  authority  to  be  implied.  But  here,  again,  the 
facts  found  so  circumscribe  the  range  of  inquiry  as  to  exclude  all  the 
ordinary  sources  of  such  authority.  The  circumstances  from  which 
an  authority  may  be  implied  are  identical  with  those  involved  in  a 
question  of  ordinary  agency,  for  each  partner  is  regarded  as  the  ac- 
credited agent  of  the  rest.  In  many  cases  the  decisive  fact  is  found 
in  the  customary  course  of  dealing;  but  not  so  here,  for  it  is  found 
that  the  note  in  question  was  the  only  note  ever  given  in  the  name  of 
the  firm.  The  copartnership  first  commenced  business  in  August,  1883, 
and  on  the  24th  of  the  same  month  the  note  in  suit  was  given.  There 
was  therefore  very  little  time  for  a  course  of  conduct  or  usage  of  any 
sort  to  grow  up,  giving  any  apparent  authority.  The  finding  traces 
the  money  borrowed  only  into  the  hands  of  McCarthy  the  partner 
who  signed  the  firm  name,  and  no  fact  appears  showing,  directly  or 
presumptively,  that  the  act  was  necessary  for  any  of  the  purposes  of 
the  partnership.  The  only  remaining  source  from  which  an  authority 
may  be  derived  by  implication  must  be  sought  in  the  nature  and  scope 
of  the  partnership  and  in  the  nature  of  the  act ;  and  here,  if  we  examine 
the  legal  principles  that  are  applicable,  it  will  be  found,  not  only  that 
all  such  implication  is  wanting,  but  that  the  presumption  is  directly 
against  the  authority  assumed.  The  weight  of  authority  in  the  United 
States,  and  the  uniform  tenor  of  the  authorities  in  England,  will  be 
found  to  establish  a  controlling  distinction  in  respect  to  implied  au- 
thority between  commercial  or  trading  and  nontrading  partnerships. 

10  Part  of  the  opinion  is  omitted. 


204  THE  POWERS  OF  PARTNERS 

Story,  Partn.  (6th  Ed.)  §  102a;  1  Lindl.  Partn.  (4th  Ed.,  by  Ewell), 
top  p.  2GG,  and  note  1,  and  cases  there  cited;  1  Colly.  Partn.  6i8,  G58; 
Mete.  Cont,  121,  and  cases  cited  in  the  notes. 

In  a  commercial  partnership  each  acting  partner  is  its  general  agent, 
with  impHed  authority  to  act  for  the  firm  in  all  matters  within  the 
scope  of  its  business ;  and  the  presumption  of  law  is  that  ah  commer- 
cial paper  which  bears  the  signature  of  the  firm,  executed  by  one  of 
the  partners,  is  the  paper  of  the  partnership,  for  the  reason  that  the 
giving  of  such  notes  would  be  within  the  usual  course  of  mercantile 
transactions.  But  when  we  pass  to  nontrading  partnerships  the  doc- 
trine of  general  agency  does  not  apply,  and  there  is  no  presumption 
of  authority  to  support  the  act  of  one  partner.  Hence,  in  order  to 
subject  the  firm  upon  a  bill  or  note  executed  by  one  partner  in  its 
name,  a  course  of  conduct,  or  usage,  or  other  facts  sufficient  to  war- 
rant the  conclusion  that  the  acting  partner  had  been  invested  by  his 
copartners  with  the  requisite  authority,  must  appear,  or  that  the  firm 
has  ratified  the  act  by  receiving  the  benefit  of  it.  That  the  partnership 
in  question  belongs  to  the  nontrading  class  seems  so  obvious  as  to  need 
no  discussion.  The  brief  in  behalf  of  the  defendant  Cole  cites  many 
cases,  and  gives  a  long  list  of  pursuits  and  professions  which  those 
cases  establish  as  of  the  nontrading  class,  and,  although  the  conduct  of 
a  theater  is  not  there  mentioned,  yet  the  analogies  manifestly  include 
it.  To  show  the  existence  of  the  distinction  contended  for,  and  its 
application,  we  select  from  a  multitude  of  authorities  the  following, 
in  addition  to  those  previously  referred  to:    *    *    * 

IMany  more  authorities  equally  pertinent  might  be  cited,  but  these 
will  suffice  to  show  that  the  distinction  relied  upon  is  strongly  sup- 
ported both  in  England  and  in  the  United  States.  While  we  feel  con- 
strained to  adopt  the  distinction  between  the  two  classes  of  partner- 
ship so  far  as  the  presumption  of  authority  or  the  want  of  it  is  con- 
cerned, we  do  not  deem  it  necessary  for  the  purposes  of  this  case, 
or  even  quite  reasonable,  to  carry  its  application  so  far  as  to  deny 
absolutely,  as  some  of  the  cases  do,  the  right  to  recover  on  a  note  given 
by  a  nontrading  firm  for  money  borrowed  for  the  firm  and  appro- 
priated to  its  use,  or  on  a  note  given  in  payment  of  its  debts.  Some 
authorities  ignore  the  test  of  liability  referred  to,  but  adopt  another, 
which  is  equivalent  in  result.  Chancellor  Kent,  in  his  chapter  on  Part- 
nerships in  the  third  volume  of  his  Commentaries  (7th  Ed.  p.  44), 
omits  the  use  of  the  terms  "trading"  and  "nontrading,"  and  makes 
the  distinction  between  partnerships,  in  respect  to  the  power  of  one 
partner  to  bind  the  firm,  depend  on  the  single  test  of  the  usual  scope 
of  the  business,  in  connection  with  the  subject-matter  of  the  con- 
tract.    *     *     * 

Many  authorities  lay  down  the  unqualified  proposition,  as  if  it  was 
applicable  to  all  partnerships,  that  if  one  partner  raises  money  on  a 
negotiable  bill  or  note  signed  or  indorsed  in  the  name  of  the  firm,  and 
which  comes  into  the  hands  of  a  bona  fide  purchaser,  the  partnership 


PAETICULAR    P0WEE9   CONSIDERED  205 

is  bound,  although  it  was  in  fact  for  the  individual  use  of  the  acting 
partner.     *     *     * 

The  plaintiff,  as  holder,  must  stand  affected  by  the  nature  of  the 
partnership,  of  which  he  was  fully  advised.  He  purchased  the  note 
in  the  face  of  the  presumption  that  it  was  unautliorized,     ♦     ♦     * 

In  the  case  at  bar  the  plaintiff  had  full  and  actual  knowledge  of 
the  nature  of  the  partnership,  and  the  law  attributed  to  him  knowl- 
edge, also,  that  one  partner  could  not  bind  the  other  by  bill  or  note 
without  authority,  and  knowing,  as  he  did,  that  the  note  had  been 
written  and  signed  by  McCarthy,  who  was  irresponsible,  and  that,  if 
he  purchased  it,  it  would  be  upon  the  credit  of  Cole  alone,  and  having 
also  actual  knowledge  of  a  course  of  dealing  which  avoided  Mc- 
Carthy and  pointed  to  Cole  alone  as  the  financial  representative  of  the 
firm,  it  seems  to  us  the  plaintiff  took  the  note  at  his  peril.  It  was 
very  strange  for  the  plaintiff  to  inquire  of  the  one  who  had  used  the 
firm  name  if  it  was  the  note  of  the  firm,  and  omit  entirely,  when  he 
had  ample  and  easy  opportunity,  to  inquire  of  the  other  partner,  on 
"whose  sole  credit  he  depended;  but  the  court  has  found  that  the  fail- 
ure to  inquire  of  Cole  was  not  owing  to  a  belief  that  the  inquiry 
would  result  in  finding  the  note  invalid,  and  this  we  must  accept  as 
true.  Ordinarily  such  a  finding  would  save  the  rights  of  a  holder 
in  good  faith  of  negotiable  paper,  but  the  great  difficulty  in  the 
present  case  is  that  the  note  was  purchased  with  constructive  notice 
that  it  was  not  within  the  apparent  scope  of  the  partnership  business, 
and  prima  facie  was  not  the  note  of  the  firm;  and  the  actual  course 
of  business,  so  far  as  it  was  known  to  the  plaintiff,  tended  to  increase 
rather  than  allay  the  suspicion  of  a  want  of  authority.     *     ♦     ♦ 

Judgment  as  against  Cole  reversed  and  new  trial  ordered. 


HARRISON  V.  JACKSON  et  al. 

(Court  of  King's  Bench,  1797.    7  Term.  R.  207.) 

This  was  an  action  of  covenant  upon  an  agreement  of  three  parts, 
stated  in  the  declaration  to  have  been  made  on  the  10th  of  July,  lT9-i, 
between  the  defendants,  describing  them  as  merchants  and  partners, 
of  the  first  part,  W,  and  J.  Harrison,  of  the  second  part,  and  the  plain- 
tiff', of  the  third  part,  of  one  part  of  which  said  agreement,  as  being 
sealed  with  the  seal  of  the  said  W.  Sykes  for  himself  and  the  other 
two  defendants,  the  plaintiff  made  a  profert  in  the  court.  The  declara- 
tion then  stated  the  agreement  and  covenant  of  the  defendants,  the 
subject-matter  of,  which  agreement  and  covenant  appeared  on  the 
agreement  to  be  a  partnership  transaction  on  the  part  of  the  defend- 
ants, and  to  have  been  entered  into  on  a  full  and  valuable  consideration 
received  by  them  as  partners.  The  declaration  then  stated  the  breach 
of  covenant,  whereby  the  plaintiff  had  sustained  damage  to  the  amount 
found  by  the  jury. 


206  THE  POWERS  OF  PARTNERS 

To  this  declaration  the  defendants  pleaded  that  the  agreement  was 
not  the  deed  of  the  defendants.  Issue  being  joined,  the  cause  was  tried 
at  the  sittings  after  Hilary  Term,  1797,  before  Lord  Kenyon,  at  Guild- 
hall, when  the  jury  found  a  verdict  for  tlie  plaintiff  damages  £477 
13s.  9d.  and  costs,  40s.  subject  to  the  opinion  of  this  court  on  the 
following  case: 

The  defendants  were  partners.  The  agreement  stated  in  the  declara- 
tion was  produced,  and  the  subscribing  witness  proved  that  it  was  exe- 
cuted in  his  presence  by  the  defendant  Sykes  in  the  following  form: 
"For  Jackson,  Self,  and  Rushforth,  W.  Sykes."  But  neither  Jack- 
son nor  Rushforth  was  present  at  the  execution.  The  question  for  the 
opinion  of  the  court  was  whether  such  execution  of  the  agreement  by 
the  defendant  Sykes  was  binding  on  the  other  defendants,  Jackson 
and  Rushforth. 

Lord  Kenyon,  C.  J.^^  *  *  *  The  law  of  merchants  is  part  of  the 
law  of  the  land ;  and  in  mercantile  transactions,  in  drawing  and  accept- 
ing bills  of  exchange,  it  never  was  doubted  but  that  one  partner  might 
bind  the  rest.  But  the  power  of  binding  each  other  by  deed  is  now  for 
the  first  time  insisted  on,  except  in  the  nisi  prius  case  cited,  the  facts  of 
which  are  not  sufficiently  disclosed  to  enable  me  to  judge  of  its  pro- 
priety. Then  it  was  said  that,  if  this  partnership  were  constituted  by 
writing  under  seal,  that  gave  authority  to  each  to  bind  the  others  by 
deed ;  but  I  deny  that  consequence  just  as  positively  as  the  former,  for 
a  general  partnership  agreement,  though  under  seal,  does  not  authorize 
the  partners  to  execute  deeds  for  each  other,  unless  a  particular  power 
be  given  for  that  purpose.  This  would  be  a  most  alarming  doctrine  to 
hold  out  to  the  mercantile  world.  If  one  partner  could  bind  the  others 
by  such  a  deed  as  the  present,  it  would  extend  to  the  case  of  mortgages, 
and  would  enable  a  partner  to  give  to  a  favorite  creditor  a  real  lien  on 
the  estates  of  the  other  partners. 

Pjjr  Curiam.    Postea  to  the  defendants. 


STRAFFIN'S  ADM'R  v.  NEWELL  et  al. 
(Superior  Court  of  Georgia,  1808.    T.  U.  P.  Charit.  163,  4  Am.  Dec.  705.) 

This  was  an  action  of  covenant  brought  upon  a  charter  party,  signed 
and  sealed  thus :  "Thomas  and  Robert  Newell."  A  verdict  has  been 
rendered  for  the  plaintiff,  and  a  motion  is  now  made  to  arrest  the 
judgment,  upon  the  ground  that  one  partner  cannot  execute  a  deed  to 
bind  the  other. 

Charlton,  J.  The  point  for  the  decision  of  the  court  is,  whether 
one  partner  can  bind  another  by  deed.  The  general  principle  of  the 
law  is,  that  all  partners  are  bound  by  what  one  of  them  does  in  the 
course  of  the  business ;    for  quoad  hoc,  each  partner  is  considered  as 

11  Part  of  ttie  opinion  is  omitted. 


PARTICULAB   POWERS   CONSIDERED  207 

the  authorized  agent  of  the  rest,  and  all  are  respectively  implicated, 
and  each  becomes  liable  to  the  fullest  extent,  in  such  trade  or  business. 
Law  of  Partn.  105  ;   Davics'  Bank  Law,  8. 

It  is  said  that  partnerships  embrace  only  chattel  interests,  and  the 
free  disposition  of  these  requires  not  the  solemnity  of  deeds  or  in- 
dentures. The  right  of  one  to  bind  the  interests  of  all  is  wisely  re- 
strained within  the  limits  of  personal  estate,  and  it  is  with  a  view  to 
this,  that  partners  are  allowed  to  bind  each  other  by  deed.  Amcr. 
Lex  Mer.  437,  It  is  also  laid  down  in  the  case  of  Gerard  v.  Basse, 
1  Dal.  119,  1  L.  Ed.  63,  that  "one  partner  cannot  execute  a  deed  for 
anothei." 

But  the  case  principally  relied  on  by  Davis  and  Berrien,  is  Harrison 
V.  Jackson,  7  T.  R.  207,  where  it  is  said  by  Lord  Kenyon,  C.  J.,  "that 
the  law  of  merchants  is  part  of  the  law  of  the  land.  And  in  mercantile 
transactions,  in  drawing  and  accepting  bills  of  exchange,  it  never  was 
doubted,  but  that  one  partner  might  bind  the  rest.  But  the  power  of 
binding  each  other  by  deed  is  now,  for  the  first  time,  insisted  on  ex- 
cept in  the  nisi  prius  case  cited,  the  facts  of  which  are  not  sufficiently 
disclosed  to  enable  me  to  judge  of  its  propriety." 

I  have  given  to  this  case,  and  to  all  others  I  have  had  opportunity  of 
inspecting  on  this  subject,  the  most  attentive  investigation;  and  whilst 
I  assent  to  the  general  propositions  of  Lord  Kenyon  and  Shippen,  I 
do  not  conceive  that  they  apply  to  the  mercantile  transaction  of  a 
charter  party.  It  does  not  say  in  this  case  of  7  Term.  Rep.  upon  what 
kind  of  agreement  covenant  was  brought,  and  I  can  find  no  cases  of 
actions  upon  charter  parties  where  the  question  was  directly  involved, 
as  it  relates  to  the  signature  of  the  partners;  but  there  is  a  case  in 
point  as  to  the  liability  attached  to  both  or  all  of  the  owners  of  a 
ship  by  the  signature  and  seal  of  one. 

It  is  thus  stated  in  Beanes'  Lex  Mercatoria,  who  cites  2  Rolle's 
Abr.  22,  "If  an  indenture  of  charter  party  be  made  between  A.  and 
B.,  owners  of  a  ship  of  the  one  part,  and  C.  and  D.,  merchants  of  the 
other  part,  but  in  the  indenture  it  is  mentioned  that  A.  and  B.  cove- 
nant with  C.  and  D.,  and  C.  and  D.  covenant  with  A.  and  B.,  in  this 
case  A,  and  B.  may  join  in  an  action  vs.  C.  and  D.,  though  B.  never 
seals  the  deed,  for  he  is  a  party  to  the  deed,  and  C.  and  D.  have  sealed 
the  other  parts  to  B.  as  well  as  to  A."    Beanes'  Lex  Merca.  133. 

If  one  of  the  freighters  or  owners  of  a  ship,  who  are  quoad  hoc- 
partners,  can  bind  the  other  by  his  seal,  a  fortiori,  the  signature  and 
seal  of  one  merchant  then  can  bind  the  other  in  this  species  of  mer- 
cantile contract ;  because  in  the  one  case  there  is  only  a  special,  and 
in  the  other  a  general  partnership,  the  principles  of  which  are  mor? 
liberal  and  extended. 

I  bottom  my  decision  upon  the  broad  ground  that  a  charter  party 
is  exclusively  a  mercantile  transaction,  and  always  in  the  course  of 
trade.    The  general  proposition  of  Lord  Kenyon  must  refer  to  deeds 


208  THE  POWERS  OF  PARTNERS 

not  in  the  course  of  trade.  I  mean  a  deed  so  inseparably  incidental, 
so  closely  blended  with  partnerships  and  mercantile  pursuits,  as  the 
contract  of  charter  party  is.  A  charter  party  is  as  essential  in  the 
course  of  trade,  as  the  negotiation  of  bills  of  exchange ;  and  I  can 
perceive  no  difiference  between  the  exigencies  which  would  impose  a 
liability  in  the  one  case,  and  destroy  it  in  the  other.  This  contract 
could  not  have  been  in  the  contemplation  of  judges  when  they  decided 
that  one  partner  could  not  bind  the  other  by  deed.  The  silence  of  the 
books,  when  it  is  supposed  that  many  cases  might  have  occurred, 
affords  the  strongest  reason  to  believe  that  the  deed  of  charter  party 
is  not  within  the  general  principle  stated  by  Kenyon  and  Shippen.  The 
deeds  they  speak  of  are  those  which  reach  the  separate  estates  of  the 
partners,  are  unconnected  with  the  partnership,  or  have  no  relation  to 
the  course  of  trade.  A  charter  party  has  so  peculiar  a  view  to  mer- 
cantile matters  and  ideas,  that  all  the  parties  covenanting  become  liable 
in  a  given  extent,  as  partners  according  to  the  law  merchant.  Law  of 
Partn.  89,  and  like  all  mercantile  contracts,  it  ought  to  have  a  liberal 
interpretation.  Doug.  277.  I  have  consulted  some  merchants  on  this 
subject,  and  they  inform  me,  that  it  is  customary  either  to  sign  the 
name  of  the  firm,  or  for  one  partner  to  first  sign  his  own  name,  and 
then  add  "for  self  and  other  partners,"  mentioning  their  names.  Still, 
however,  there  is  but  one  seal,  and  the  signature  is  by  one.  I  have 
also  examined  a  printed  precedent,  and  I  find  it  is  signed  and  sealed  in 
the  manner  of  this,  which  illustrates  the  understanding  of  writers  on 
the  subject. 

The  motion  in  arrest  of  this  judgment  is  therefore  overruled. 


BURGAN  V.  LYELL  et  al. 

(Supreme  Court  of  Michigan,  1856.    2  Mich.  102,  55  Am.  Dec.  53.) 

Pratt,  J.^*  This  is  an  action  of  assumpsit,  brought  by  the  plain- 
tiff in  Wayne  county  court,  for  work  and  labor  claimed  to  have  been 
performed  for  the  defendants  in  their  mining  business. 

The  cause  was  submitted  to  the  court  below  on  a  written  statement, 
in  which-  it  is  admitted  that  the  defendants  impleaded  in  this  suit  in- 
cluded all  the  members  of  the  company;  that  they  all  signed  the  orig- 
inal article  of  copartnership,  and  prosecuted  the  business  of  mining 
under  them. 

These  concessions,  thus  made,  constitute  conclusive  evidence,  as 
against  the  defendants,  of  a  partnership  in  fact,  in  which  they  are  all, 
as  partners,  engaged  in  the  business  of  mining.  2  Greenleaf,  Ev.  §  484. 
It  further  appears,  from  the  case  submitted,  that  Andrew  Harvie,  a 
member  and  one  of  the  managers  of  the  company,  employed  the  plain- 

12  Part  of  the  opinion  is  omitted. 


PAETICULAB   POWERS   CONSIDERED 


209 


tiff  to  perform  the  work  in  question.    But  whether  nis  powers,  as  one 
of  the  managers  of  the  company,  were  general,  or  special  and  limited, 
does  not  appear;  nor  is  it  material  to  a  judicial  determination  of  this 
cause,  as  every  member,  in  legal  contemplation,  without  any  special 
powers  being  conferred  upon  him  by  the  articles  of  copartnership,  is 
not  only  a  principal  of  the  firm,  but  a  general  agent,  for  all  the  co- 
partners, in  the  transaction  of  their  legitimate  company  business  (Story 
on  Part.'  1;    Har.  Ch.  172),  each  member  being  vested  with  power 
which  enables  him  to  act  at  once  as  principal,  and  all  are  regarded  as 
being  present  and  sanctioning  the  engagements  and  contracts  which 
they  may  singlv  enter  into  within  the  scope  of  their  partnership  mat- 
ters (Story  on  "Part.  158,  159).    Harvie,  then,  being  one  of  the  part- 
ners, was  vested  with  the  right  of  contracting  with  the  plaintiff,  and 
any  work  performed  by  him  for  the  company  under  the  contract  would 
legally  bind  all  of  the  partners  for  the  payment  of  it.     Although  liar- 
vie,  as  a  single  member,  was  inhibited  from  making  such  a  contract 
by  some  express  provision  of  the  articles  of  copartnership,  still  the 
rights  of  third  persons,  to  whom  such  provision  was  unknown,  would 
not  be  thereby  affected,  nor  would  it  tend  in  the  least  to  bar  a  third 
person,  who  had  by  the  procurement  of  a  single  member,  without  no- 
tice, rendered  services  for  the  company,  in  recovering  therefor  in  a 
suit  against  all.     2  Greenleaf,  Ev.  §  481;    Story  on  Part.  193.     The 
plaintiff,  by  the  procurement  of  Harvie,  as  appears  by  the  case,  labor- 
ed for  the  company  in  their  mining  operations  nine  months  and  two 
days,  at  $18  per  month.    In  this  labor  of  the  plaintiff  all  the  partners 
are  interested,  and  in  judgment  of  law  all  are  presumed  to  have  been 
cognizant  of  its  performance,  and  to  have  derived  at  least  some  bene- 
fit from  it;  hence  all  are,  as  they  should  be  by  every  principle  of  jus- 
tice, held  equally  responsible  to  the  plaintiff  for  the  payment  of  the 
services  thus   rendered.     And  as  regards  their  joint  liability  it  is  a 
matter  of  no  legal  moment  whether  some  of  the  partners  were  dor- 
mant in  fact,  or  whether  they  subsequently  assented  to,  or  dissented 
from  the  proceedings  of  those  with  whom  they  had  entrusted  the  man- 
agement of  their  company  business.     They   would,   nevertheless,  be 
jointly  liable  to  the  plaintiff  for  his  work. 

After  the  services  were  rendered,  the  plaintiff,  as  appears  by  the 
case,  made  out  an  account  therefor  against  the  company,  the  balance 
of  which,  after  deducting  some  small  sums  which  had  been  paid  and 
credited,  amounted  to  $147.43,  on  which  John  Greenfield,  their  super- 
intending agent  of  the  hands  employed  on  the  mining  location,  certified 
to  John  \vinder,  a  member  and  also  one  of  the  managers  of  the  com- 
pany, that  the  account  was  correct,  and  that  the  balance  thereof  was 
due  to  the  plaintiff.  Winder  afterwards,  on  presentation  of  the  ac- 
count and  certificate  to  him,  paid  to  the  plaintiff  $40,  which  was  in- 
dorsed thereon. 

It  is  a  well-settled  principle  of  law  "that  the  acknowledgment  by 
one  partner,  during  the  continuance  of  the  partnership,  of  a  debt  as 

GlLSr.PART. — 14 


210  THE  POWERS  OF  PARTNERS 

due  by  the  partnership,  will  amount  to  a  promise  binding  the  firm." 
The  certificate  of  the  superintending  agent,  and  tlie  recognition  of 
the  account  by  a  member  and  one  of  the  managers  of  the  company,  con- 
stitute sufficient  evidence  of  such  acknowledgment.  "And  so  a  part 
payment  of  a  debt  of  a  firm  by  one  partner,  during  the  continuance  of 
the  partnership,  will  not  only  extinguish  pro  tanto  the  partnership 
debt,  but  will  operate  as  an  admission  of  the  existence  of  the  residue 
of  the  debt,  binding  on  all  the  partners."    Story  on  Partnership,  p.  160 

These  are  rules  of  law  about  which  there  has  never  been  any  dis- 
agreement, either  by  legal  authors  or  courts  of  last  resort;  and  by  them 
all  the  members  of  this  company  are  equally  liable  to  the  plaintiff  for  the 
payment  of  the  balance  due  him  on  the  account.     *     *     ♦ 

The  opinion,  therefore,  of  this  court,  is  that  the  plaintiff  is  entitled 
to  judgment  for  the  balance  of  his  account  and  interest  from  the  time 
of  its  liquidation. 


IV.  Power  to  Subject  Firm  to  Tort  Liability** 


HANEY  MANUFACTURING  COMPANY  v.  PERKINS. 

(Supreme  Court  of  Michigan,  1889.    78  Mich.  1,  43  N.  W.  1073.) 

Long,  J.^*  This  action  was  brought  by  the  plaintiff,  a  manufacturing 
corporation,  to  recover  damages  alleged  to  have  been  caused  by 
reason  of  the  publication,  oral,  written,  and  printed,  of  the  statement 
that  the  defendants  had  brought  suit  in  the  United  States  court  against 
the  plaintiff  for  an  infringement  of  a  patent,  and  had  secured  an  in- 
junction against  it,  and  closed  it  up,  which  statements  were  claimed 
to  be  false  and  malicious.    *    *    * 

At  the  close  of  the  trial  in  the  circuit  court  the  court  directed  the 
jury  to  return  a  verdict  in  favor  of  the  defendants,  on  the  ground 
that  the  testimony  offered  by  the  plaintiff  did  not  entitle  it  to  re- 
cover.   *    *    * 

Some  contention  is  made  that  the  defendants  could  not  be  made 
jointly  liable  for  these  slanders  upon  the  business  of  the  plaintiffs,  even 
if  one  or  two  of  the  partners  may  have  been  found  guilty.  The  de- 
fendants were  partners  in  business,  and  each  of  the  partners  is  an  agent 
of  the  partnership  as  an  entirety,  and,  if  in  the  course  of  that  business 
he  injures  the  business  of  another  by  slander,  the  partnership  is  liable 
therefor,  just  as  it  might  be  for  any  other  tort  by  any  other  agent. 
Patten  v.  Gurney,  17  Mass.  182,  9  Am.  Dec.  141 ;  Lothrop  v.  Adams, 
133  Mass.  471,  43  Am.  Rep.  528;  Atlantic  Glass  Co.  v.  Paulk,  83 
Ala.  404,  3  South.  800.  In  the  present  case  it  is  claimed  that  the  very 
purpose  of  these  statements  was  to  aid  the  business  of  the  defendants 

18  For  a  discussion  of  principles,  see  GUmore  on  Partnership,  §§  107-113. 
1*  Part  of  the  opinion  is  omitted. 


POWER   TO    SUBJECT   FIRM   TO   TORT  LIABILITY  211 

as  a  partnership,  by  preventing  plaintiff  from  making  sales  of  an  ar- 
ticle which  the  defendants  were  themselves  as  a  partnership  selling. 
If  this  fact  is  proven,  then,  in  the  course  of  the  partnership  business, 
if  any  one  of  the  partners  made  false  representations  as  to  the  business 
of  another,  and  for  the  purpose  of  aiding  the  business  of  his  own 
firm,  the  partnership  must  be  held  responsible  for  it.     *     *     * 

For  the  errors  pointed  out,  the  judgment  of  the  court  below  must 
be  reversed,  with  costs,  and  a  new  trial  ordered. 


WOLF  et  al.  v.  MILLS. 
(Supreme  Court  of  Illinois,  1870.    56  111.  360.) 

Thornton,  J,  The  appellee  brought  an  action  on  the  case,  alleg- 
ing that  appellants  sold  him  a  lot  of  sheep  pelts,  having  on  them  a 
large  quantity  of  wool,  and,  with  intent  to  defraud  him,  delivered 
other  and  inferior  pelts  in  quality,  and  deficient  in  the  quantity  of 
wool.     Appellee  recovered  a  verdict. 

Wolf  &  Haber  jointly  owned  the  pelts  at  the  time  of  the  sale.  The 
proof  is  satisfactory  that  the  pelts  sold  averaged  about  five  pounds  of 
wool  per  pelt,  and  the  pelts  delivered  only  three  pounds.  As  to  the 
alleged  fraud,  the  evidence  is  conflicting.  One  witness  testified  posi- 
tively that  he  saw  young  Haber,  a  son  of  appellant,  change  the  pelts, 
and  that  he  placed  light  in  place  of  the  heavy  pelts,  soon  after  the  sale. 
This  was  contradicted  by  the  son;  but  the  weight  of  evidence  has 
been  determined  by  a  jury,  and  we  shall  not  disturb  the  finding,  un- 
less some  principle  of  law  has  been  violated. 

Appellants  urge  that,  as  there  is  no  evidence  to  prove  the  change, 
if  made,  was  by  the  direction  of  Wolf,  or  by  any  person  in  his  em- 
ployment or  under  his  control,  therefore  he  is  not  liable.  The  evi- 
dence does  show  that  Wolf  and  Haber  were  partners  in  the  buving 
and  selling  of  the  sheep  pelts,  and  that  young  Haber  was  handling 
them,  and  throwing  them  from  one  pile  to  the  other.  The  jury  was 
justified  in  the  inference  that  this  was  in  the  scope  of  the  partnership 
business,  as  it  was  connected  with  the  joint  property.  It  is  improbable 
that  the  son  would  be  thus  engaged,  unless  directed.  The  father  must 
have  given  him  some  instructions  in  regard  to  the  exchange. 

There  was,  then,  no  error  in  the  following  instruction  given  for 
appellee:  "If  the  jury  believe  from  the  evidence  that  the  defendants 
sold  the  plaintiff  a  certain  lot  of  sheep  pelts  at  an  agreed  price,  and 
that  plaintiff  has  paid  such  price,  and  that  the  defendants  afterward, 
either  in  person,  by  their  agents,  servants,  or  employes,  delivered  to 
plaintiff  a  lot  of  sheep  pelts  in  any  respect  different  from  and  inferior 
to  those  actually  sold,  intending  thereby  to  have  the  plaintiff  believe 
they  were  the  same  he  had  purchased,  and  intending  to  deceive  and 
defraud  the  plaintiff,  then  the  jury  are  instructed  to  find  defendants 
guilty,  and  to  assess  as  damages  whatever  loss  the  evidence  may  show 
the  plaintiff  sustained  through  such  fraud  and  deceit." 


212  THE  POWERS  OF  PARTNERS 

A  tortious  act  of  one  partner  will  often  create  a  liability  against 
the  firm.  So  a  fraud  committed  by  one  partner  in  the  course  of  the 
partnership  business  binds  the  firm,  even  though  the  other  partners 
have  no  knowledge  of,  or  participation  in,  the  fraud.  The  jury  might 
reasonably  infer  all  that  was  necessary  to  fix  the  liability  of  the  firm. 

Judgment  affirmed. 


HARMAN  V.  JOHNSON. 

(Court  of  Queen's  Bench,  1S53.    2  El.  &  Bl.  61.) 

The  first  count  of  the  declaration  stated  that  defendant,  on,  etc.,  by 
his  promissory  note  now  overdue,  promised  to  pay  to  plaintiff  £1,G70, 
and  interest,  at  5  per  cent,  per  annum,  two  years  after  date,  but  did 
not  pay  the  same.  The  second  count  stated  that  "plaintiff  retained 
and  employed  defendant,  and  his  partner  William  Henry  Smith,  then 
carrying  on  their  business  of  attorneys  and  solicitors  in  copartnership, 
to  invest  certain  money  on  mortgage  in  a  proper  manner,  and  they 
accepted  such  retainer  and  employment,  and  accordingly  took  that 
money  from  the  plaintiff  to  invest  a  mortgage  in  a  proper  manner; 
but,  though  a  reasonable  time  for  so  investing  it  had  elapsed  before 
this  suit,  it  has  never  been  invested,  whereby  the  plaintiff  has  lost  the 
whole  of  it."  There  were  also  counts  for  money  lent,  money  received, 
and  on  an  account  stated. 

Pleas:  (1)  To  the  first  count:  That  defendant  did  not  make  the 
said  note,  etc.  Issue  thereon.  (2)  To  the  second  count:  "That  the 
plaintiff  did  not  retain  or  employ  the  defendant  and  the  said  W.  H. 
Smith,  nor  did  the  defendant  and  the  said  W.  H.  Smith  accept  such 
retainer  or  employment,  in  manner,"  etc.  Issue  thereon.  (3)  To  the 
second  count:  "That  the  defendant  and  the  said  W.  H.  Smith  did  not 
take  said  money  in  the  said  second  count  mentioned  from  the  plain- 
tiff as  in  that  count  alleged."  Issue  thereon.  (4)  To  tlie  residue  of 
the  declaration:   "Nunquam  indebitatus."    Issue  thereon. 

On  the  trial  *  *  *  it  appeared  that  defendant  and  William 
Henry  Smith  ♦  *  *  agreed  that  they  would  "become,  continue, 
and  be  copartners  in  the  *  *  *  profession  of  an  attorney  and 
solicitor,  and  all  matters  and  things  usually  connected  with,  or  forming 
part  of,  the  carrying  on  of  the  same,  or  in  any  way  or  manner  in- 
cidental thereto,"  for  twelve  years.  *  *  *  Subsequently  to  the  ex- 
ecution of  this  agreement  Smith  had,  without  the  knowledge  of  de- 
fendant, received  from  plaintiff,  professedly  on  behalf  of  the  firm,  a 
sum  of  £1,670.  According  to  some  of  the  evidence,  plaintiff  had  given 
a  general  direction  that  this  sum  should  be  invested  by  the  firm  for  her 
by  way  of  mortgage;  but  according  to  other  evidence  she  deposited 
it  in  order  that  it  should  be  advanced  on  a  particular  mortgage,  if  that 
security  turned  out  to  be  good.  Smith,  however,  retained  the  money 
so  deposited  for  his  own  private  purposes,  and  prevailed  on  plaintiff  to 


POWEE  TO   SUBJECT   FIRM   TO   TOET   LIABILITY  213 

take,  as  security  for  it,  the  promissory  note  mentioned  in  the  declara- 
tion, which,  without  the  knowledge  of  defendant,  he  signed  in  the 
name  of  the  firm,  "Smith  &  Johnson."  Smith  afterwards  absconded, 
and  plaintiff  brought  the  present  action  against  defendant  alone. 

The  Lord  Chief  Justice,  after  intimating  his  opinion  that  there  was 
not  evidence  to  fix  the  defendant  with  any  liability  on  the  promissory 
note,  told  the  jury,  with  respect  to  the  rest  of  the  declaration,  that,  if 
;he  plaintiff  employed  Smith  as  the  partner  of  Johnson,  meaning  to  em- 
ploy the  firm  of  Smith  &  Johnson  to  invest  the  money  for  her  on  mort- 
gage, or  gave  Smith  the  money  for  that  purpose,  and  Smith  repre- 
sented to  her  that  the  firm  of  Smith  &  Johnson  could  invest  the  money 
for  her  on  mortgage,  the  defendant  was  liable,  inasmuch  as  the  receipt 
of  the  money  by  Smith  for  the  purpose  of  its  being  laid  out  on  mort- 
gage would  be  an  act  within  the  scope  of  authority  which  Smith  had 
as  partner  with  the  defendant;  for  that  attorneys  now,  as  part  of 
their  business,  acted  as  scriveners — that  is,  in  laying  out  money  on 
security — the  separate  profession  of  scrivener  having  fallen  into  dis- 
use.   Verdict  for  plaintiff  for  il,670. 

McCauley,  in  last  Easter  Term,  obtained  a  rule  nisi  for  a  new  trial 
on  the  ground  of  misdirection.^* 

Lord  Campbell,  C.  J.  I  think  there  should  be  a  new  trial.  The 
action  is  against  Johnson,  who  is  charged  in  the  character  of  a  part- 
ner with  Smith  in  the  calling  of  an  attorney.  There  is  no  evidence 
going  beyond  the  bare  -fact  of  their  having  jointly  carried  on  the  busi- 
ness of  attorneys.  I  think  that  an  attorney,  qua  attorney,  is  not  a 
scrivener;  that  his  business  is  to  act  in  a  court  of  law,  to  prepare  con- 
veyances, to  examine  titles,  and  so  on,  but  not  to  act  as  a  scrivener. 
A  scrivener  has  to  hold  the  money  put  into  his  hands  until  he  has  an 
opportunity  of  laying  it  out;  but  this  employment  of  scrivener  is  not 
a  consequence  of  his  character  of  attorney.  The  question,  then,  here 
is  whether  Smith  was  acting  within  the  scope  of  his  partnership  au- 
thority. If  he  received  the  money  generally  for  the  purpose  of  laying 
it  out,  he  was  not  acting  within  his  calling  of  attorney.  Attorneys 
frequently  do  act  as  scriveners  in  the  full  sense  of  the  term;  but  there 
is  no  evidence  that  Smith  and  Johnson  did  so,  or  that  the  money  re- 
ceived was  received  for  purposes  within  the  object  of  the  partnership. 
There  was  strong  evidence  that  Smith  received  the  money  to  be  laid  out 
upon  mortgage,  and  that  he  induced  Mrs.  Harman  to  entrust  him  with 
the  money  by  representing  that  he  had  a  security  ready;  but  I  cannot 
say  that  this  was  conclusive.  And,  when  I  advert  to  the  terms  in  which 
I  directed  the  jury,  I  think  that  they  were  too  general;  for,  if  the 
meaning  of  Mrs.  Harman  was  that  a  security  should  be  found,  and 
that  the  money  should  be  left  in  order  to  be  invested  in  some  mort- 
gage that  might  be  found  to  be  an  eligible  security,  then  tlie  business 
was  not  to  be  performed  in  the  character  of  an  attorney.     I  think, 

18  Part  of  the  statement  of  facts  Is  omitted. 


214  THE  POWERS  OF  PARTNERS 

therefore,  that  the  question  was  left  too  widely  to  the  jury.  It  should 
have  been  left  more  pointedly  to  tliem  whether  the  money  was  placed 
in  Smith's  hands  for  the  purpose  of  being  advanced  on  a  particular 
mortgage,  or  whether  it  was  deposited  with  him  until  he  could  find  a 
proper  mortgage.  Had  it  been  so  left,  the  jury  should  have  been  told 
to  find  for  the  plaintiff  on  the  first  supposition  and  for  the  defendant 
on  the  second. 
Rule  absolute. 


GILRUTH  V.  DECELU 
(Supreme  Court  of  Mississippi,  1S94.    72  Miss.  232,  16  South.  250.) 

Bill  in  chancery,  reciting  that  complainant  was  in  1892  the  wife 
of  T.  F-  Decell,  deceased,  who  was  then  a  member  of  the  firm  of  Gil- 
ruth  &  Decell ;  that  at  that  time  she  was  the  owner  of  a  house  and  lot 
in  Jackson,  Miss. ;  that  she  sold  same,  and  that  $1,600  of  the  purchase 
money  was  placed  to  her  credit  in  the  Capital  State  Bank  of  Jackson; 
that  the  amount  was  withdrawn  from  said  bank  on  a  check  drawn 
January  11,  1892,  in  favor  of  the  Bank  of  Yazoo  City;    that  to  said 
check  complainant's  name  and  that  of  T.  F.  Decell  were  signed ;   that 
complainant's  signature  was  forged  by  T.  F.  Decell;    that  she  was 
ignorant  of  the  forgery  for  some  months  thereafter,  and  that  she  left 
her  husband  in  March,  1893,  and  that  he  was  killed  soon  afterwards, 
and  that  T.  J.  Moore  was  the  administrator  of  his  estate;   that  J.  N. 
Gilruth,  as  surviving  partner,  after  qualifying  as  required  by  law,  took 
charge  of  the  partnership  property,  and  is  now  administering  the  same ; 
that  the  $1,600  obtained  by  the  forgery  was  placed  to  the  credit  of 
T.  F.  Decell  in  the  Bank  of  Yazoo  City,  and  was  checked  out  by  him 
for  his  individual  use;  that  on  the  16th  of  February,  1892,  he  checked 
on  said  deposit  in  favor  of  Gilruth  &  Decell  for  $500,  which  sum  was 
placed  to  the  credit  of  T.  F.  Decell  on  the  books  of  Gilruth  &  Decell 
as  capital  paid  in  by  him  to  complete  the  amount  to  be  contributed  by 
him  in  the  firm  of  Gilruth  &  Decell;   that  said  sum  of  $500  is  still  in 
the  firm  of  Gilruth  &  Decell,  and  has  gone  into  the  hands  of  the  sur- 
viving partner ;  that  the  removal  and  conversion  of  said  sum  of  money 
by  said  T.  F.  Decell  was  a  fraud  upon  complainant,  and  that  said  De- 
cell  held  same  as  trustee  ex  maleficio;   that  complainant  is  entitled  to 
have  said  sum  of  $500,  mingled  with  the  firm  assets  of  Gilruth  &  De- 
cell,  repaid  to  her  out  of  the  firm  assets  in  preference  to  all  other 
claims  against  said  assets,  with  interest  from  the  date  it  was  with- 
drawn.    The  bill  makes  Gilruth,  as  surviving  partner,  the  only  de- 
fendant, and  prays  that  the  court  will  decree  that  the  said  sum  of 
$500  was  her  money,  and  was  held  in  trust  for  her,  and  went  into 
the  firm  of  Gilruth  &  Decell  impressed  with  said  trust,  and  that  it 
be  refunded  her  out  of  the  firm  assets. 

Whitfield,  J.    It  is  not  alleged  in  the  bill  that  Gilruth  actually  par- 
ticipated in  the  fraud  by  which  Decell  converted  the  trust  fund  to  his 


POWER   TO   SUBJECT   FIRM   TO   TORT   LIABILITY  215 

own  use,  and  afterwards  paid  it  into  the  firm  in  payment  of  the  bal- 
ance of  his  subscription  to  its  capital  stock;  nor  that  he  had  any  ac- 
tual knowlcdt^e  of  anytliing  done  by  DeccU  in  connection  therewith. 
The  acts  and  doings  of  DeccU  throughout  were  wholly  outside  the 
scope  of  the  partnership  business.  Under  the  circumstances,  while 
there  may  be  some  cases  to  the  contrary  as  Palmer  v.  Scott,  G8  Ala. 
382,  and  Welker  v.  Wallace,  31  Ga.  362,  it  is  well  settled  in  Mississip- 
pi (Pickcls  V.  McPherson,  59  Miss.  21G),  and  generally,  that  a  bill 
cannot  be  maintained  against  the  firm  to  recover  from  it  the  trust 
fund  thus  put  by  the  guilty  partner,  without  participation  or  knowl- 
edge on  the  part  of  the  others,  into  the  assets  of  the  firm.  Knowledge 
of  the  guilty  partner  in  such  case  is  not  the  knowledge  of  the  firm. 
Liability  of  the  other  partners  in  such  case,  if  it  e.xist,  must  grow  out 
of  participation,  as  joint  wrongdoers,  in  the  fraud,  and  not  out  of  the 
fact  that  they  are  partners,  or  their  liability  as  partners.  Bates,  Partn. 
§  481 ;  Evans  v.  Bidleman,  3  Cal.  435~;  I  Lindl.  Partn.  pp.  *142,  *143. 
Jessel,  M.  R.,  thus  emphatically  puts  it  in  Williamson  v.  Barbour,  9 
Ch.  Div.  535,  536:  "When  we  come  to  a  question  of  fraud,  different 
considerations  arise.  It  is  not  true  that  the  knowledge  of  a  fraud  by  a 
partner  is  necessarily  the  knowledge  of  the  firm.  A  very  obvious  in- 
stance *  *  ♦  may  be  shown,  and  is  best  shown,  by  an  example 
Suppose  there  is  a  firm  with  half  a  dozen  partners  who  have  a  clerk, 
and  the  clerk  has  been  in  the  habit  of  receiving  presents  from  one  of 
the  sellers  to  the  firm  in  order  to  pass  goods  of  short  weight,  and  fur- 
ther suppose  that  the  clerk,  not  having  been  found  out,  is  taken  into 
partnership  as  a  junior  partner  and  continues  the  practice.  Is  it  to 
be  imagined,  under  these  circumstances,  that  in  a  court  of  equity  the 
other  partners  could  not  sue  the  vendor  of  the  goods  for  the  fraud, 
and  not  only  sue  him  but  their  partners  also?  *  *  ♦  I  emphatic- 
ally deny  that  any  such  doctrine  could  by  any  possibility  be  laid  down 
by  any  judge,  and  I  need  not  say  it  has  never  been  laid  dow^n.  Of 
course  fraud  must  be  an  exception.  I  put  the  case  of  a  clerk  knowing 
it  before  he  became  a  partner,  and  not  interfering  with  it  afterwards. 
But  it  is  immaterial  that  the  knowledge  was  acquired  during  the  part- 
nership. *  ♦  *  It  appears  to  me  that  that  kind  of  notice  will  not 
do  when  it  is  applied  to  cases  of  fraud."  And  says  Lindlcy:  "If  one 
partner  is  a  trustee,  and  he  improperly  employs  the  trust  funds  in 
the  partnership  business,  his  knowledge  that  he  is  so  doing  is  not 
imputable  to  the  firm ;  and  therefore,  to  aflfect  the  other  partners  with 
a  breach  of  trust,  further  evidence  must  be  adduced."  It  is  not  within 
the  scope  of  the  bill  to  subject  Decell's  interest  in  the  partnership  as- 
sets. Besides,  his  administrator  is  not  a  party.  Robertshaw  v.  Han- 
way,  52  Miss.  713,  717.  The  decree  is  reversed,  demurrer  sustained, 
and  bill  dismissed. 


216  THE  POWERS  OF  PARTNERS 


V.  Powers  of  Partners  After  Dissolution  *• 


MAJOR    V.    HAWKES. 
(Supreme  Court  of  Illinois,  1850.    12  111.  298.) 

The  defendants  in  error  sued  Major,  in  the  McLean  circuit  court, 
to  recover  an  indebtedness  due  to  them  as  copartners.  Major  proved 
the  payment  of  his  indebtedness  to  Hawkes,  one  of  the  copartners, 
after  the  publication  of  a  notice  of  dissolution  by  mutual  consent.  A 
verdict  was  found  on  the  circuit  against  Major,  and  he  brings  the 
cause  to  this  court  by  writ  of  error. 

Trumbull,  J.  Upon  the  voluntary  dissolution  of  partnership,  each 
of  the  partners,  in  the  absence  of  any  agreement  to  the  contrary,  re- 
tains the  right  to  collect  debts  due  the  firm,  and  give  discharges  there- 
for.   Story  on  Partnership,  §  328. 

Hawkes  had,  therefore,  just  as  much  right  to  receive  the  money 
from  Major,  and  give  the  receipt  of  the  firm,  as  either  of  the  other 
partners,  and  the  receipt,  if  honestly  obtained,  was  a  defense  to  the 
further  prosecution  of  the  action.  The  fact  that  Major  first  made  an 
attempt  to  settle  the  account  by  giving  Hawkes  credit  upon  a  claim 
which  he  had  against  him  individually,  did  not  prevent  him  from 
afterwards  paying  the  money  to  Hawkes,  when  he  ascertained  that  the 
other  partners  would  not  assent  to  the  first  arrangement.  Major  was 
not  responsible  for  the  application  which  Hawkes  made  of  the  money, 
so  that  he  paid  it  in  good  faith ;  nor  does  the  insolvency  of  Hawkes 
at  the  time  alter  the  case.  The  record  shows  that  he  was  known  by 
the  other  partners  to  have  beeen  insolvent  when  the  partnership  was 
formed.  They  were  willing  to  trust  him  notwithstanding,  and  by  be- 
coming his  partners  gave  to  him  the  same  right  to  receive  the  debts 
that  should  become  due  the  firm  which  either  of  them  should  possess. 
It  is  true  that  without  the  assent  of  his  copartners  he  had  no  right 
to  apply  partnership  effects  in  discharge  of  his  individual  indebted- 
ness, and  a  creditor  of  his,  knowingly  receiving  such  effects  in  dis- 
charge, would  be  responsible  for  the  same  to  the  firm. 

To  deprive  Major  of  the  benefit  of  the  payment  made  to  Hawkes 
it  was  incumbent  upon  the  plaintiffs  below  to  show  that  it  was  not 
made  in  good  faith.  It  has  been  suggested  by  counsel  that  the  money 
was  returned  to  Major  after  being  paid  over;  but  there  is  no  evi- 
dence in  the  case  to  justify  such  a  presumption.  The  witness  to  the 
receipt  testifies  that  the  money  was  paid  over  to  Hawkes  in  his  pres- 
ence, and  this  is  all  the  evidence  in  the  record  about  the  money.  For 
aught  that  appears,  Hawkes  may  have  accounted  with  his  copartners 
for  the  money  received  from  Major;  but  whether  he  has  or  not  is 
quite  immaterial  to  Major,  provided  he  honestly  paid  the  money  and 

16  For  a  discussion  of  principles,  see  Gilruore  on  Partnership,  §§  114-121. 


POWERS   OF  PARTNERS   AFTER   DISSOLUTION  217 

has  in  no  way  aided  or  abetted  in  the  misapplication  of  it.     There 
would  be  no  safety  in  paying  a  partnership  debt  to  a  single  member  of 
a  firm,  if  the  debtor  was  bound  to  see  that  the  money  was  properly 
applied  by  the  partner  receiving  it. 
Judgment  reversed. 


WHITING  et  al.  v.  FARRAND  et  al. 
(Supreme  Court  of  Connecticut,  1814.    1  Conn.  CO.) 

Sw^iFT,  J.^^  This  was  an  action  to  recover  payment  for  books  con- 
tracted to  be  delivered  to  the  defendants.    *    *    * 

It  is  further  insisted  on  by  the  defendants  that  their  copartnership 
was  dissolved  prior  to  the  delivery  of  the  books;  that  the  plaintiffs 
could  not  afterwards  deliver  them,  and  bring  this  action  to  recover 
payment  for  them ;  but  that  their  remedy  is  by  an  action  for  a  breach 
of  contract  arising  from  the  dissolution  of  the  copartnership. 

Copartners  may  dissolve  their  connection  at  pleasure,  and  this  is 
no  violation  of  any  subsisting  contracts  with  others;  for  they  mav, 
and  they  are  bound  to,  perform  them  in  the  same  manner  as  if  no  dis- 
solution had  taken  place.  No  action  can  ever  be  sustained  against 
them,  stating  a  mere  dissolution  of  the  partnership  as  a  breach  of  con- 
tract; for  they  can  perform  it  notwithstanding  such  dissolution.  In 
the  present  case,  the  contract  being  executory,  the  plaintiffs  could 
have  no  right  of  action  till  they  had  performed  on  their  part.  If,  then, 
a  dissolution  of  the  copartnership  by  the  defendants  could  prevent  the 
plaintiffs  from  delivering  the  books,  and  excuse  the  defendants  from 
receiving  or  becoming  chargeable  for  them,  it  would  be  in  the  power 
of  a  partnership,  by  its  own  act  of  dissolution,  to  destroy  a  previous 
and  subsisting  contract.  This  would  be  directly  subversive  of  the  prin- 
ciples on  which  all  copartnerships  are  founded. 

New  trial  not  to  be  granted. 


GOODSPEED    V.    WIARD    PLOW    CO^IPANY. 
(Supreme  Court  of  Michigan,  1S81.    45  Mich.  322,  7  N.  W.  902.) 

CA\rPBELL,  J.  Goodspeed  and  Fales,  prior  to  February  13,  1S79, 
were  partners  in  business,  and  on  the  21st  day  of  January,  preceding 
the  dissolution,  Fales,  in  the  name  of  the  firm,  but  in  the  absence  of 
Goodspeed,  and  without  his  knowledge  or  authority,  gave  to  an  agent 
of  the  Wiard  Plow  Company  an  order  in  writing  for  a  large  number 
of  articles  connected  with  their  business,  to  be  shipped  on  the  1st 
day  of  April  thereafter.  On  the  13th  of  February  the  firm  was  dis- 
solved, and  on  the  same  day  the  agent  was  informed  of  the  dissolu- 
tion. The  price  of  the  articles  ordered  was  shown  to  be  above  $500. 
On  the  15th  of  February  a  portion  of  the  articles  were  shipped,  and 
the  remainder,  some  earlier  and  some  later  than  April.     All  came  into 

17  Part  of  the  opinion  and  the  statement  of  facts  are  omitted. 


218  THE  POWERS  OF  PARTNERS 

the  hands  of  Fales.  There  was  no  proof  of  any  other  acceptance  of 
the  order  than  the  shipment,  unless  the  agent  at  the  time  of  receiving 
the  order  made  some  arrangement  on  the  subject,  which  is  not  shown. 

On  a  suit  against  Goodspeed  and  Fales  the  court  held  that  the  ship- 
ment of  goods  and  their  reception  by  Fales  bound  Goodspeed,  and 
that  the  fact  that  the  time  of  shipment  was  different  from  that  named 
in  the  order  made  no  difference. 

We  think  this  was  erroneous,  and  that  there  was  no  ground  of  re- 
covery. A  retiring  partner  is  bound  by  all  previous  contracts  made 
within  the  line  of  the  business,  but  after  dissolution  he  is  not  bound 
by  any  new  contract  made  by  his  copartner. 

The  order  given  by  Fales  made  no  contract  until  accepted,  and  un- 
til acceptance  could  at  any  time  be  withdrawn.  Inasmuch  as  the 
amount  of  goods  exceeded  $50,  there  could  be  no  binding  contract  as 
against  the  Wiard  Plow  Company  without  either  a  writing  or  some  act 
done  on  the  faith  of  the  order.  Here  there  was  no  proof  of  accept- 
ance of  the  order  in  writing,  if  at  all.  The  shipment  of  the  goods  was 
not  made  in  accordance  with  the  terms  of  the  order,  and  was  not  made 
until  the  order  had  been  rescinded  by  notice  of  the  dissolution.  Fales 
could  not  waive  any  of  the  conditions,  so  as  to  bind  Goodspeed,  after 
the  dissolution.  The  sale  made  was  not  the  sale  agreed  upon,  if  there 
was  any  agreement.  The  case  is  therefore  doubly  defective,  in  not 
showing  any  valid  agreement  at  all,  and  in  showing  a  departure  from 
the  agreement  proposed.    Either  objection  is  fatal  to  a  recovery. 

Judgment  was  reversed,  and  a  new  trial  ordered. 


WOOD  et  al.  v.  BRADDICIC 
(Court  of  Common  Pleas,  1808.    1  Taunt.  104.) 

This  was  an  action  brought  to  recover  from  the  defendant  the  pro- 
ceeds of  certain  linens,  which  the  bankrupts,  in  the  year  1796,  had  con- 
signed for  sale  in  America,  as  the  plaintiffs  alleged,  to  the  defendant, 
jointly  with  one  Cox,  who  was  then  his  partner,  but,  as  the  defend- 
ant contended,  to  Cox  only.  The  defendant  pleaded  the  general  issue 
and  the  statute  of  limitations.  At  the  trial  at  Guildhall,  before  Mans- 
field, C.  J.,  the  plaintiffs  produced  in  evidence  a  letter  from  Cox, 
dated  the  24th  of  June,  1804,  stating  a  balance  of  i919  to  be  then  due 
to  the  bankrupts  upon  this  consignment. 

It  was  in  proof  that  on  the  30th  of  July,  1802,  Braddick  and  Cox 
dissolved  their  partnership,  as  from  the  17th  of  November,  1800. 

Cockell  and  Lens  objected  that  this  letter,  being  written  after  the 
dissolution  of  the  partnership,  was  not  admissible  evidence  to  charge 
Braddick.  The  Chief  Justice  overruled  the  objection,  but  reserved  the 
point ;  and  the  jury,  being  of  opinion  that  the  agency  was  undertaken 
by  Cox  on  the  partnership  account,  found  a  verdict  for  the  plaintiff. 

Cockell  now  moved  for  a  new  trial. 


POWERS   or  PAETNEBS   AFTER   DISSOLUTION  219 

MansftKLD,  C.  J.  Clearly  the  admission  of  one  partner,  made  aft- 
er the  partnership  has  ceased,  is  not  evidence  to  charge  the  other,  in 
any  transaction  which  has  occurred  since  their  separation ;  but  the 
power  of  partners  with  respect  to  rights  created  pending  the  partner- 
ship remains  after  the  dissolution.  Since  it  is  clear  that  one  partner 
can  bind  the  other  during  all  the  partnership,  upon  what  principle  is 
it  that  from  the  moment  when  it  is  dissolved  his  account  of  their  joint 
contracts  should  cease  to  be  evidence,  and  that  those  who  are  to-day  as 
one  person  in  interest,  should  to-morrow  become  entirely  distinct  in  in- 
terest with  regard  to  past  transactions  which  occurred  while  they  were 
united? 

Heath,  J.  Is  it  not  a  very  clear  proposition  that,  when  a  partner- 
ship is  dissolved,  it  is  not  dissolved  with  regard  to  things  past,  but 
only  with  regard  to  things  future?  With  regard  to  things  past,  the 
partnership  continues,  and  always  must  continue. 

Cockell  took  nothing  by  his  motion. 


MILLER  V.  NEIMERTCK  et  al. 
(Supreme  Court  of  Illinois,  1857.    19  111.  172.) 

Skinner,  J."  Miller  sued  Neimerick  and  Eckert,  as  late  partners, 
upon  a  book  account.  On  the  trial  Miller  offered  in  evidence  a  writ- 
ten statement,  made  by  Neimerick  after  the  dissolution  of  the  part- 
nership, admitting  a  balance  due  from  the  firm  of  Neimerick  &  Eck- 
ert to  Miller.  The  court  rejected  the  evidence,  and  judgment  was 
rendered  for  the  defendants. 

The  question  is  broadly  presented  whether  admission  of  one  part- 
ner, made  after  the  dissolution  of  the  partnership,  relating  to  partner- 
ship transactions  arising  prior  to  the  dissolution,  are  admissible  to 
charge  the  several  members  of  the  dissolved  firm.  In  the  case  of 
Wood  V.  Braddick,  1  Taunt.  104,  such  admissions  were  held  compe- 
tent to  charge  all  the  members  of  the  firm,  and  that  ruling  seems  to 
have  been  followed  in  England  until  finally  avoided  by  act  of  Parlia- 
ment. The  same  rule  has  been  recognized  in  several  states  of  this 
Union,  but  in  many  of  them  the  opposite  doctrine  prevails. 

In  view  of  the  conflict  of  authority  upon  the  question,  we  are  at 
liberty  to  adopt  such  rule  as  is  most  consonant  with  the  reason  and 
analogies  of  the  law  and  best  adapted  to  the  security  of  private  rights. 
It  is  true  that,  during  the  existence  of  the  partnership,  each  partner 
may  act  for  the  whole,  upon  the  ground  that  all  have  delegated  to  each 
authority  to  act  for  them  in  matters  of  joint  concern;  but  this  plenary 
power  of  the  several  members  of  the  partnership  continues  no  longer 
than  the  partnership  out  of  which  it  arises.  Therefore,  when  the  part- 
nership has  terminated,  the  several  partners  lose  their  authority  to  act 

18  Part  of  the  opinion  and  the  statement  of  facts  are  omitted. 


220  THE  POWERS  OF  PARTNERS 

for  the  whole,  and  can  no  longer  bind  them  by  any  undertaking  in  the 
partnership  name;  and  their  powers  become  limited  to  the  adjust- 
ment of  the  partnership  affairs  and  the  winding  up  of  the  partnership. 
For  such  purposes  each  may  receive  and  release  debts  due  the  part- 
nership, and  apply  the  assets  to  the  liquidation  of  the  firm  debts,  the 
pre-existing  rights  of  their  persons  remaining  unaffected  by  the  dis- 
solution; but  the  power  to  bind  the  several  members -of  the  dissolved 
firm,  by  the  creation  of  new  liabilities  and  obligations,  falls  with  the 
partnership. 

The  admission  of  one  partner  of  a  debt  of  the  partnership,  made 
when  the  partnership  has  no  existence,  if  sufficient  to  establish  the  lia- 
bility of  all  the  partners,  involves  the  power  to  bind  all  by  the  creation 
of  a  partnership  liability;  for  it  is  indifferent  to  the  other  partners 
whether  their  liability  be  established  by  the  admission,  or  the  under- 
taking, written  or  verbal,  of  one  of  their  number. 

The  effect  in  either  case  is  the  same.  A  joint  liability  is  prima  facie 
established  and  imposed,  which  may  be  satisfied,  not  only  out  of  the 
partnership  property,  but  out  of  the  separate  estates  of  the  former 
partners. 

If  the  several  members  of  a  dissolved  firm  can,  by  admission  or 
stipulation,  charge  their  former  partners,  not  only  may  the  partnership 
assets  be  swallowed  up,  but  the  individual  members  of  the  late  firm 
may  be  made  bankrupt,  by  admissions  made  after  the  partnership  has 
ceased  to  exist,  by  one  no  longer  their  agent,  without  the  sanctions 
of  an  oath,  or  any  of  the  ordinary  guarantees  of  truth,  and  who  may 
be  without  pecuniary  ability  to  respond  in  damages,  is  influenced  by 
ill  will  or  private  gain,  and  has  in  fact  no  real  concern  as  to  conse- 
quences of  mere  legal  liability.     *     *     * 

We  hold  the  written  statement  or  admission  incompetent  to  charge 
Eckert.     *     *     * 

Judgment  affirmed. 


MAYBERRY   et   al.   v.   WILLOUGHBY. 
(Supreme  Court  of  Nebraska,  1877.    5  Neb.  368,  25  Am.  Rep.  491.) 

Gantt,  J.^"  In  the  court  below,  service  of  summons  was  had  on 
C.  N.  jMayberry  only.  He  pleaded  the  statute  of  limitations,  and  he 
now  brings  the  case  into  this  court  as  plaintiff  in  error. 

It  appears,  from  the  facts  admitted,  that  the  plaintiff  in  error  and 
J.  C.  Mayberry  were  formerly  partners,  doing  business  in  the  state 
of  Illinois,  under  the  firm  name  of  J.  C.  &  C.  N.  Mayberry ;  that  on 
the  14th  day  of  January,  1864,  the  note  on  which  this  action  was 
brought  was  executed  by  the  firm  and  delivered  to  the  defendant  in 
error;  that  on  the  29th  day  of  March,  1864,  the  partnership  was 
wholly  dissolved,  and  that  on  or  about  the  15th  day  of  July,  1868,  the 

i»  Part  of  the  opinion  is  omitted. 


POWERS   OF  PAETNERS   AFTER   DISSOLUTION  221 

defendant  in  error  had  notice  of  the  dissolution  of  the  partnership; 
that  in  March,  18G9,  the  plaintiff  in  error  moved  to  the  state  of  Nebras- 
ka, and  has  ever  since  resided  there.  J.  C.  Mayberry  made  partial 
payments  on  the  note,  on  the  IGth  day  of  November,  18C4,  on  the  1st 
day  of  June,  18GS,  on  the  25th  day  of  July,  1870,  and  on  the  29th  day 
of  November,  1871;  and  of  these  payments  the  plaintiff  in  error  had 
no  knowledge  whatever,  until  after  the  commencement  of  the  suit, 
on  the  18th  day  of  April,  1876. 

The  only  question  raised  in  the  case  is:  Do  these  payments,  made 
by  J.  C.  Mayberry,  take  the  debt  out  of  the  statute  of  limitations  as  to 
the  plaintiff  in  error? 

It  is  said  that  the  statute  is  a  wise  and  beneficial  law,  and  should  not 
be  viewed  in  an  unfavorable  light;  and  it  is  now  generally  conceded 
that  it  is  not  to  be  construed  as  merely  raising  a  presumption  of  pay- 
ment, but  that  in  its  operation  it  is  intended  to  be  emphatically  a  statute 
of  repose. 

Therefore,  in  order  to  take  a  debt  out  of  it,  there  must  be  an  un- 
qualified acknowledgment,  not  only  of  the  debt  as  originally  due,  but 
that  it  continues  so,  or,  if  the  promise  to  pay  is  conditional,  the  condi- 
tion must  be  performed  before  an  action  can  be  maintained  on  the 
promise,  and  the  acknowledgment  or  promise  must  be  made  by  the  per- 
son to  be  charged,  or  by  some  person  legally  authorized  by  him  to 
do  so. 

Again,  as  the  law  strictly  affects  the  remedy,  and  not  the  merits, 
it  seems  well  settled  that  upon  the  plea  of  the  statute  the  lex  fori  must 
prevail.  McElmoyle  v.  Cohen,  13  Pet.  (U.  S.)  327,  10  L.  Ed.  177; 
Townsend  v.  Jemison,  9  How.  (U.  S.)  413,  13  L.  Ed.  194;  Bell  v. 
Morrison,  1  Pet.  (U.  S.)  351,  7  L.  Ed.  174. 

Hence  the  law  must  be  regarded  as  designed  to  protect  persons 
from  ancient  claims,  whether  well  or  ill  founded,  and  its  tendency  is 
to  produce  speedy  settlements,  and  if  such  settlements  are  not  made 
within  the  time  limited  by  the  law  its  effects  are  such  as  to  extinguish 
the  legal  liability  upon  the  debt,  unless  it  be  revived  by  a  new  promise ; 
and  therefore,  if  the  creditor  by  his  own  fault  and  laches  permits  the 
statute  to  attach,  whatever  may  be  the  nature  or  character  of  his 
claim,  he  cannot  complain  of  the  operation  of  the  law,  since  it  is  by 
his  own  negligence  that  it  can  be  brought  to  bear  against  him. 

But,  as  J.  C.  and  C.  N.  Mayberry  were  partners  at  the  time  the 
debt  was  contracted,  it  is  contended  that,  notwithstanding  the  dissolu- 
tion of  the  partnership  with  notice  thereof  to  the  creditor,  and  not- 
withstanding the  time  limited  by  the  statute  within  which  actions  can 
be  commenced  after  the  cause  of  action  shall  have  accrued,  had  long 
expired,  as  to  the  plaintiff,  yet  the  payments  made  by  J.  C.  Mayberry, 
as  above  stated,  and  without  the  knowledge  or  assent  of  the  plaintiff 
in  error,  constitute  an  admission  by  both,  and  in  law  raise  a  promise 
by  both  to  pay  the  claim;  and  this  proposition  is  urged  upon  the 
ground  that,  as  J.  C.  ^Mayberry  had  authority  to  discharge  the  debt 
or  make   paynlents  thereon,  he  necessarily  had  authority,   upon  the 


222  THE  POWERS  OP  PARTNERS 

theory  that  a  virtual  agency  existed  in  each  co-contractor,  by  his  in- 
dividual promise  to  charge  the  other  with  the  payment  of  the  debt. 
This  is  true  as  to  partners,  for  it  is  a  familiar  and  well-established 
doctrine  that  during  the  existence  of  the  partnership  the  act  of  one 
partner  within  the  legitimate  scope  of  the  partnership  business,  will 
bind  the  other  partners;  and  this  doctrine,  no  doubt,  had  its  origin 
in  the  fact  that  in  a  partnership,  constituted  by  voluntary  contract,  with 
the  understanding  that  there  shall  be  a  communion  of  profits  between 
them,  there  must  necessarily  be  in  each  partner  a  community  of  in- 
terest with  the  others  in  the  whole  property,  business,  and  responsi- 
bilities of  the  concern,  and  therefore  each  partner  is  "praepositus  ne- 
gotiis  societatis,"  and  in  the  diverse  and  multiplied  transactions  of  the 
business,  each  must,  virtute  officii,  become  the  agent  of  the  others, 
when  acting  within  the  scope  and  objetfs  of  the  partnership.  But, 
upon  the  dissolution  of  the  partnership,  this  agency,  as  well  as  the 
relation  of  partners,  ceases  to  exist,  and  the  authority  to  create  new 
contracts  is  revoked,  and  the  rights  of  the  partners  thereafter  can 
only  extend  to  the  settlement  of  the  partnership  concerns  and  the 
disbursement  of  the  remaining  funds.  It  is  said  that,  "after  dissolu- 
tion, no  valid  draft,  acceptance,  or  indorsation  can  be  made  by  the 
firm;  and  it  is  no  authority  to  do  so,  if  any  partner  is  in  the  notice 
empowered  to  receive  and  pay  the  debts  of  the  company.  The  indorsa- 
tion, draft,  or  acceptance  must  be  done  by  all  of  the  partners,  or  by 
one  specially  empowered  to  do  the  act  for  them."  2  Bell's  Com.  644; 
Story  on  Part.  §  332 ;  1  Smith,  Lead.  Cases,  730.  No  new  contract 
can  be  created  in  the  name  of  the  firm,  and  no  one  of  the  partners  can 
create  such  contract  so  as  to  charge  the  others,  unless  they  specially 
authorize  him  to  do  so  for  them. 

Now,  the  doctrine  seems  well  settled  by  p.rithority  that  an  acknowl- 
edgment is  to  be  considered,  not  as  a  continuation  of  the  old  promise, 
but  as  the  evidence  of  a  new  promise;  and  therefore  it  is  alone  this 
new  promise  which  takes  the  debt  out  of  the  statute.  This  new  prom- 
ise is  a  new  contract,  nothing  more,  nothing  less ;  and  it  is  a  contract 
to  pay  a  pre-existing  debt,  which  of  itself  does  not  bind  the  party, 
because  by  force  of  the  law  it  was  extinguished.  Hence,  is  not  the 
acknowledgment,  in  essence  and  in  law,  the  creation  of  a  new  con- 
tract, which  gives  the  creditor  a  new  cause  of  action,  and  not  simply 
the  enforcement  of  the  old  one?  It  therefore  seems  clear,  both  upon 
principle  and  authority,  that,  after  the  relation  of  partners  has  ceased 
to  exist,  one  of  the  partners  cannot,  upon  the  ground  of  mutual  agency, 
bind  the  others  by  such  contract.  The  relation  of  the  partners  to  their 
creditors,  then,  becomes  that  of  joint  debtors.  Bell  v.  Morrison, 
supra;  Hackley  v.  Patrick,  3  Johns.  (N.  Y.)  537;  Green  v.  Crane, 
2  Lord  Raym.  1101;  Thompson  v.  Peters,  12  Wheat.  (U.  S.)  565. 
6  L.  Ed.  730;  Tompkins  v.  Brown,  1  Denio  (N.  Y.)  247;  Dean  v 
Hewit,  5  Wend.  (N.  Y.)  257;  Dunham  v.  Dodge,  10  Barb.  (N.  Y.) 
569. 


POWERS   OP  PARTNERS   AFTER   DISSOLUTION 


223 


It  is,  however,  urg:ed  that  the  acknowledgment  relied  on  in  the 
case  at  bar  consists  of  partial  payments  made  on  the  original  debt  of 
J.  C.  Mayberry,  and,  as  some  of  these  payments  were  made  before  the 
time  limited  by  the  statute  had  expired,  the  statute  of  limitations  did 
not  attach  as  to  the  plaintifT  in  error;  but  it  is  said  "that  although 
a  part  payment  of  a  debt  admits  its  existence  as  a  subsisting  obliga- 
tion, and  will,  therefore,  be  sufficient  to  take  it  out  of  the  statute,  yet 
that  it  has  no  greater  effect  than  any  other  unqualified  acknowledg- 
ment, and  must  consequently  be  connected  by  sufficient  evidence,  both 
with  the  parties  to  the  suit  and  the  claim  sought  to  be  enforced."  1 
Smith's  Lead.  Cases,  726.  Such  payments  necessarily  prove  only  the 
existence  of  the  debt  to  the  amount  paid;  but  from  the  fact  of  such 
payment  a  promise  is  inferred  to  pay  the  residue.  Dunham  v.  Dodge, 
supra.  And,  again,  it  is  said:  "The  true  rule  unquestionably  is  that 
whether  the  admission  precedes  or  follows  the  bar  makes  no  differ- 
ence, and  that,  while  proof  of  the  continued  existence  of  the  debt  and 
of  the  willingness  of  the  debtor  to  pay  is  requisite  in  all  cases,  noth- 
ing more  will  be  requisite  in  any."  1  Smith's  Lead.  Cases,  714;  Ayers 
V.  Richards,  12  111.  146 ;    Fryeburg  v.  Osgood,  21  Me.  176. 

And  now  the  question  is,  can  one  joint  debtor,  by  an  assumed  au- 
thority as  the  virtual  agent  of  the  other,  legally  charge  him  with  the 
payment  of  the  debt,  when  otherwise  he  would  be  discharged,  and 
the  debt  be  extinguished  as  to  him,  by  operation  of  the  statute? 

The  doctrine  that  a  promise  or  acknowledgment  by  one  joint  debtor 
takes  the  debt  out  of  the  statute,  and  binds  his  co-contractor,  upon  the 
ground  that  he  who  makes  the  promise  virtually  acts  as  the  agent 
of  the  other,  seems  to  have  originated  in  an  unreasoned  decision  of 
Lord  Mansfield  in  the  case  of  Whitcomb  v.  Whiting,  Doug.  651. 
But  that  case  is  contrary  to  the  previous  case  of  Bland  v.  Haselrig, 
2  Vent.  151,  and  it  must  be  regarded  as  the  cause  of  all  the  confusion 
which  exists  in  the  decisions,  both  in  England  and  America,  on  the 
subject  of  the  statute,  in  respect  to  joint  debtors. 

In  England,  however,  the  doctrine  enunciated  in  Whitcomb  v.  Whit- 
ing has  been  somewhat  restricted,  which  has  remedied  some  of  the 
mischief  inherent  in  it.  1  B.  &  Aid.  467.  And  its  force  has  been  much 
weakened  in  the  case  of  Atkins  v.  Tredgold,  2  Barn.  &  C.  23,  in  which 
Holroyd,  J.,  seems  to  doubt  Whitcomb  v.  Whiting  as  law. 

Story,  in  his  work  on  Partnership  (section  324),  says  that:  "In 
America  no  small  diversity  of  judicial  decision  has  been  expressed 
on  this  subject.  In  some  of  the  states,  the  English  doctrine  has  been 
approved;  in  others  it  has  been  silently  acquiesced  in,  or  left  doubts 
ful;  and  in  a  considerable  number  it  has  been  expressly  overruled." 
In  the  Supreme  Court  of  the  United  States  it  has  been  overruled,  as 
unfounded  in  principle.  Bell  v.  IMorrison,  supra;  Van  Keuien  v. 
Parmelee,  2  N.  Y.  525,  51  Am.  Dec.  322;  Dunham  v.  Dodge,  10 
Barb.  (N.  Y.)  570;   Forney  v.  Benedict,  5  Barr  (Pa.)  227.     *     *     * 

It  seems  the  doctrine  that  one  joint  debtor  can  take  a  debt  out  of 


224  THE  POWERS  OF  PARTNERS 

the  statute  as  to  all  is  based  exclusively  on  the  theory  that  there  is 
a  virtual  agency  in  each  co-contractor,  in  such  case,  by  which  the 
promise  of  one  binds  the  rest.  But  upon  what  principle  can  this  doc- 
trine of  mutual  agency  be  maintained?  It  cannot  be  founded  on  a 
communion  of  profits  or  a  community  of  interests,  as  in  the  case  of 
partnership,  for  the  reason  that  in  fact  no  such  interests  exist  be- 
tween the  persons  who  are  merely  joint  debtors ;  and  it  cannot  be 
grounded  merely  upon  a  new  promise  by  only  one  of  the  parties,  for 
the  reason  that  in  fact  and  in  law,  as  seems  now  to  be  well  settled, 
such  promise  is  a  new  contract,  which  is  necessarily  different  from 
the  original  contract  in  respect  to  form,  time,  and  substance,  and  is 
the  creation  of  a  new  cause  of  action ;  and  the  proposition  will  not 
be  questioned  that  one  joint  debtor  can,  by  such  new  contract,  bind 
his  co-contractors.  It  is,  therefore,  certainly  difficult  to  discover  any 
just  grounds  upon  which  the  doctrine  of  mutual  agency  in  joint  debtors 
can  be  founded;  hence  must  it  not  rest  alone  upon  a  mere  assump- 
tion, which  is  untrue  in  fact,  and  unsupported  by  any  reasonable  and 
just  interpretation  of  law? 

It  is  not  only  contrary  to  the  earlier  cases  in  England,  but  we  think 
it  is  opposed  to  the  object  and  spirit  of  our  statute,  which,  it  seems 
clear,  was  intended  to  protect  the  individual  against  claims  after  the 
time  limited  by  the  law  for  the  commencement  of  the  action  has  ex- 
pired. The  statute  is  one  of  repose ;  and,  when  the  time  limited  by 
it  has  expired,  then  in  legal  contemplation  the  debt  is  extinguished, 
and  it  can  only  be  revived  by  a  new  promise  by  the  person  sought  to 
be  charged,  or  by  some  person  lawfully  authorized  by  him  for  that 
purpose.     *     *     * 

We  are,  therefore,  of  opinion  that  the  plea  of  the  statute  of  limita- 
tions, interposed  by  the  plaintiff  in  error,  constituted  a  good  defense 
in  this  action,  under  the  evidence  in  the  case,  and  that  the  judgment 
of  the  court  below  must  be  reversed,  and  tlie  cause  remanded. 

Judgment  reversed. 


VI.  Powers  of  Surviving  Partner  ^^ 


LINDNER  V.  ADAMS  COUNTY  BANK  et  al. 
(Supreme  Court  of  Nebraska,  1S96.    49  Neb.  735,  68  N.  W.  1028.) 

Irvine,  C.  The  record  in  this  case  discloses  that  the  Adams  County 
Bank  brought  the  action  against  Abraham  Loeb  and  wife,  Lindner, 
the  administrator,  Rosa  Hirsch,  the  widow,  and  Benjamin  and  Jacob 
Hirsch,  the  heirs,  of  Samuel  Hirsch,  deceased,  to  foreclose  a  mortgage 

20  For  a  discussion  of  principles,  see  Gilmore  on  Partnersblp,  §  122. 


POWERS   OF  SURVIVING   PARTNER 


22: 


executed  by  Loeb  and  Samuel  Hirsch  in  favor  of  the  bank.  The  case 
proceeded  to  foreclosure  and  sale,  and  after  satisfying  the  bank's  debt 
there  remained  a  large  surplus,  one-half  of  which  was  afterwards,  by 
the  court,  ordered  paid  to  the  guardian  of  the  heirs  of  Samuel  Hirsch. 
The  present  controversy  relates  to  the  disposition  of  the  remainder 
of  the  surplus,  it  being  claimed  on  one  hand  by  an  assignee  of  Loeb, 
and  on  the  other  hand  by  the  administrator  of  Hirsch.  The  district 
court  made  an  order  directing  its  payment  to  William  Kerr,  the  as- 
signee of  Loeb. 

This  order  was  made  on  consideration  of  the  application  and  the 
record  in  the  case,  without  evidence ;  and  the  question  presented  for 
review  is  substantially,  therefore,  whether  the  administrator's  applica- 
tion, taken  in  connection  with  facts  established  by  the  record,  was  suf- 
ficient, if  the  allegations  contained!  in  the  application  were  true,  to  en- 
title him  to  the  unpaid  surplus.  The  application  alleges,  in  brief,  that 
Loeb  and  Samuel  Hirsch  were,  in  the  latter's  lifetime,  partners,  and 
that  the  real  estate  sold  under  the  decree  of  foreclosure  was  partner- 
ship property ;  that,  after  the  death  of  Hirsch,  Loeb  collected  the  rents 
and  profits  of  the  real  estate,  and  continued  to  carry  on  the  business 
and  collect  debts  due  the  partnership,  but  failed  to  pay  the  debts  of 
the  partnership,  and  had  refused  to  apply  moneys  coming  into  his 
hands  for  the  purpose  of  discharging  such  debts,  but  had  converted 
the  partnership  property  to  his  own  use ;  that  the  partnership  owned 
property  largely  in  excess  of  its  liabilities ;  that  Loeb  is  insolvent : 
that,  on  an  accounting  between  Loeb  and  Hirsch's  administrator,  Loeb 
would  be  indebted  to  the  latter  in  at  least  $3,000. 

In  the  briefs  many  questions  are  discussed  with  regard  to  the  rights 
of  surviving  partners,  and  the  propriety  of  an  examination  into  their 
transactions,  and  an  accounting,  in  a  proceeding  of  this  character. 
.  We  think,  however,  a  single  principle  controls  the  decision  of  the  case. 
The  assignment  of  the  surplus  arising  from  the  sale  from  Loeb  to  Kerr 
was  made  before  the  sale  was  confirmed.  It  recites  a  consideration 
of  $1,250  paid  by  Kerr  to  Loeb.  Its  legal  effect  was  as  an  assign- 
ment of  a  chose  in  action  belonging  to  a  partnership,  by  the  surviving 
partner,  to  a  stranger.  Neither  by  any  averment  in  the  administrator's 
application  for  the  surplus,  nor  elsewhere  in  the  record,  is  the  bona 
fides  or  consideration  of  this  assignment  attacked.  On  the  dissolution 
of  a  partnership  by  the  death  of  one  of  the  partners,  the  partnership 
property  vests  in  the  survivor,  in  trust,  it  is  true,  for  the  settlement 
and  winding  up  of  the  partnership  business,  but  nevertheless  with 
power  of  disposition  for  that  purpose ;  and  the  surviving  partner  may, 
in  such  case,  convey  or  transfer  the  property  to  a  stranger,  who  will 
take  title  by  virtue  of  such  conveyance  or  transfer.  Fitzpatrick  v. 
Flannagan,  106  U.  S.  648,  1  Sup.  Ct.  369,  27  L.  Ed.  2n.  Not  only 
may  tangible  property  be  so  transferred  by  a  surviving  partner,  but 
also  choses  in  action.  Johnson  v.  Berlizheimer,  84  111.  54,  25  Am. 
Gilm.Pabt. — 15 


226  THE   POWERS  OF  PARTNERS 

Rep.  427;  Roys  v.  Vilas,  18  Wis.  169;  Daby  v.  Ericsson,  45  N.  Y. 
786;   Bohler  v.  Tappan  (D.  C.)  1  Fed.  469. 

It  follows  from  this  principle  that  the  assignment  by  Loeb,  the 
surviving  partner,  to  Kerr  of  any  surplus  that  might  remain  after  sat- 
isfying the  decree  in  favor  of  the  bank  (such  assignment  being  un- 
impeached)  operated  to  transfer  the  right  of  the  partnership  to  such 
fund  to  Kerr,  and  it  remained  no  longer  a  partnership  asset.  So  that 
the  question  as  to  whether,  in  the  absence  of  such  an  assignment,  an 
accounting  might  be  had  in  this  action  between  the  surviving  partner 
and  the  personal  representative  of  the  deceased  partner,  and  the  sur- 
plus distributed  in  accordance  with  the  result  of  such  accounting,  is 
not  material  to  the  present  case. 

A  case  much  in  point  is  Willson  v.  Nicholson,  61  Ind.  241.  That 
was  an  action  on  a  promissory  note  made  to  a  partnership,  which  had 
been  assigned  by  delivery  to  the  plaintiff  by  the  surviving  partner. 
Certain  creditors  of  the  partnership  had  filed  counterclaims,  alleging 
insolvency  of  the  firm  and  of  all  its  members,  and  that  the  note  in  suit 
constituted  the  firm's  only  assets,  and  that  the  plaintiff  had  purchased 
it  with  full  knowledge  of  the  facts.  They  prayed  that  the  proceeds 
of  the  instrument  should  be  applied  to  the  payment  of  their  claims. 
The  supreme  court  affirmed  the  action  of  the  trial  court  in  striking  out 
the  counterclaims,  on  the  ground  that  the  surviving  partner  succeeded 
to  the  assets,  and  had  the  right  to  dispose  thereof,  and  that,  in  the  ab- 
sence of  any  allegation  to  the  contrary,  it  would  be  presumed  that  the 
assignment  to  the  plaintiff  was  bona  fide,  and  for  a  valuable  consider- 
ation.   Affirmed. 


BUTCHART  v.  DRESSER. 

(In  Chancery,  1S53.    4  De  Gex,  M.  &  G.  542.) 

This  was  an  appeal  from  a  decree  of  Vice-Chancellor  Wood.  The 
facts  of  the  case  are  stated  in  10  Hare,  453.  The  following  is  an  out- 
line of  them. 

Messrs.  Butchart  &  Tempest  carried  on  business  in  partnership,  as 
share-brokers,  till  October  11,  1844,  when  the  partnership  was  dis- 
solved. Before  the  dissolution  Mr.  Tempest  had  entered  into  con- 
tracts for  purchases  of  shares  on  behalf  of  the  firm.  After  the  dis- 
solution, Tempest  borrowed  money  of  the  bankers  of  the  late  firm 
to  enable  him  to  complete  the  purchases,  and  at  the  same  time  de- 
posited the  shares  as  a  security,  with  a  memorandum  in  the  name  of 
the  firm,  authorizing  the  bankers  to  sell  the  shares.  A  sale  having  been 
made  by  the  bankers  accordingly,  Mr.  Butchart  instituted  this  suit 
against  them,  seeking  to  make  them  liable  for  the  value  of  the  shares, 
as  at  the  highest  price  at  which  they  might  have  been  sold  since  the 
deposit,  on  the  ground  that  the  sale  was  unauthorized.     The  Vice- 


POWERS   OF   SUBVIVING    PARTNEB  227 

Chancellor  held  that  the  sale  was  binding  on  the  plaintiff,  who  now 
appealed  from  that  decision. 

The  Lord  Justice  Turnkr.  This  is  a  bill  by  one  of  two  partners 
in  a  dissolved  partnership  seeking  to  charge  the  Yorkshire  Banking 
Company  with  the  value  of  a  number  of  shares  which  the  dissolved 
partnership  had  agreed  to  purchase  before  the  dissolution,  and  two 
points  only  arise  in  the  case:  first,  whether  the  deposit  made  by  Mr. 
Tempest  after  the  dissolution  was  or  was  not  valid ;  secondly,  assum- 
ing the  deposit  to  have  been  within  his  authority,  whether  a  sale  by 
the  bank  was  or  not  binding  on  the  partnership. 

Now  that  a  partner  has,  during  the  partnership,  power  to  pledge 
the  partnership  assets  for  partnership  purposes,  cannot  be  denied. 
That  he  has  power  to  sell  during  the  partnership,  for  partnership  pur- 
poses, is  equally  clear.  The  question,  therefore,  is  reduced  to  this, 
whether  the  power  to  pledge  or  sell  is  or  is  not  gone  upon  the  dissolu- 
tion. The  general  law  is  clear  that  a  partnership,  though  dissolved, 
continues  for  the  purpose  of  winding  up  its  affairs.  Each  partner  has, 
after  and  notwithstanding  the  dissolution,  full  authority  to  receive  and 
pay  money  on  account  of  the  partnership,  and  has  the  same  author- 
ity to  deal  with  the  property  of  the  partnership,  for  partnership  pur- 
poses, as  he  had  during  the  continuance  of  the  partnership.  This  must 
necessarily  be  so.  If  it  were  not,  at  the  instant  of  the  dissolution,  it 
would  be  necessary  to  apply  to  this  court  for  a  receiver  in  every  case, 
although  the  partners  did  not  diff'er  on  any  one  item  of  the  account. 
Nor  is  there  any  inconvenience  in  this  state  of  the  law ;  for  it  is  com- 
petent to  any  partner  to  apply,  in  case  of  necessity,  for  a  receiver, 
and  to  have  the  aft'airs  of  the  partnership  wound  up  under  the  direc- 
tion of  this  court,  and  thus  to  prevent  his  partner  from  exercising  un- 
duly any  power  which  he  has  as  a  partner. 

It  is,  however,  contended)  that  in  this  case  the  plaintiff  had  given 
notice  to  the  bankers  not  to  pay  any  check  drawn  on  account  of  the 
partnership.  But  it  is  not  disputed  that  contracts  had  been  entered 
into  before  the  dissolution,  and  the  question  is  how  those  contracts 
were  to  be  fulfilled, — it  being  the  duty  of  each  party  to  fulfil  them. 
One  partner  considered  it  expedient  that  the  purchases  should  not 
be  completed,  but  that  the  shares  should  be  thrown  back  on  the  hands 
of  the  vendors.  The  other  partner  considered  it  right  to  sell  the 
shares,  and  settle  the  contract  by  completion  and  realization.  Neither 
partner  applied  to  this  court  in  the  matter.  What  was  the  necessary 
consequence?  Was  it  not  that  the  original  contracts  entered  into  be- 
fore the  dissolution  ought  to  be  completed,  and  the  matter  treated  as 
remaining  in  the  state  in  which  it  was  at  the  time  of  the  dissolution? 
It  seems  to  me  to  be  clear  that  in  these  circumstances  of  a  difference 
of  opinion  between  the  partners,  as  to  retaining  or  giving  back  the 
purchased  property,  and  of  neither  of  them  applying  to  this  court,  the 
proper  course  was  to  perform  the  contracts. 


»■- 3  THE  POWERS  OF  PARTNERS 

The  question  arises  whether  Mr.  Tempest  had  authority  to  raise 
money  for  the  purpose  of  completing  the  purchases.  If  the  partner- 
ship had  continued  there  could  have  been  no  doubt  on  the  subject, 
and  I  think  that  there  is  no  doubt  that  it  subsisted  after  the  dissolu- 
tion for  the  purposes  of  the  contracts  entered  into  during  its  contin- 
uance. The  true  solution  of  the  question  is,  that  if  the  plaintiff  had 
reason  to  complain  of  the  acts  of  his  partner,  his  proper  course  was 
to  apply  to  this  court  for  a  receiver. 

The  appeal  must  be  dismissed  with  costs. 

The  Lord  Justice  Knight  Bruce  concurred. 


BIGUTS    AND   DUTIES  OF    PARTNERS  INTER  SB  229 

RIGHTS  AND  DUTIES  OF  PARTNERS  INTER  SE 
I.  Duty  to  Conform  to  the  Partnership  Agreement  * 


MURPHY    V.    CRAFTS. 
(Supreme  Court  of  Louisiana,  1858.     13  La.  Ann.  519,  71  Am.  Dec.  519.) 

Land,  J.'  The  plaintiff  and  defendant  were  commercial  partners, 
transactnig  a  general  commission  business  under  the  name  and  style 
of  Murphy  &  Crafts  in  the  city  of  New  Orleans.  Their  contract  of 
partnership  was  in  writing-,  and  the  third  article  thereof  was  in  these 
words:  "We  will  not  indorse  any  note,  draft,  or  give  our  signature 
separately  or  collectively,  except  for  our  legitimate  business  purposes." 
Crafts,  in  violation  of  this  article  of  the  partnership  agreement,  ac- 
cepted in  the  partnership  name,  for  the  accommodation  of  his  brother- 
in-law,  John  C.  Robertson,  of  the  city  of  Boston,  bills  of  exchange  to 
the  amount  of  $12,500.  Robertson  failed  in  business,  and  the  firm 
of  Murphy  &  Crafts  lost,  in  consequence  of  these  acceptances,  the  sum 
of  $5,592.90.  The  principal  question  in  this  case  is  whether  Crafts  is 
liable  to  his  partner  for  the  loss.    *    ♦    * 

Judge  Story,  in  his  Commentaries  on  the  Law  of  Partnership,  says : 
"One  of  the  most  obvious  duties  and  obligations  of  all  the  partners  is 
strictly  to  conform  themselves  to  all  the  stipulations  contained  in  the 
partnership  articles,  and  also  to  keep  within  the  bounds  and  limitations 
of  the  rights,  powers,  authorities,  and  acts  belonging  and  appropriate 
to  the  due  discharge  of  the  partnership,  trade,  or  business.  Of  course, 
every  known  deviation  from,  and  every  excess  in,  the  exercise  of  such 
rights,  powers,  authorities,  and  acts,  which  produce  any  loss  or  injury 
to  the  partnership,  are  to  that  extent  to  be  borne  by  the  partner  who 
causes  or  occasions  the  loss  or  injury,  and  he  is  bound  to  indemnify 
the  other  partners  therefor.  The  same  doctrine  is  recognized  bj 
Pothier  as  existing  in  the  French  law ;  and  it  seems,  indeed,  so  clear- 
ly the  result  of  natural  justice  as  to  require  no  particular  exposition" 
See  Story  on  Part.  §  173. 

According  to  these  rules,  the  defendant  is  clearly  bound  to  indemnify 
the  plaintiff  for  the  loss  resulting  from  his  breach  of  the  third  article 
of  their  contract  of  partnership,  unless  the  same  was  superseded  or 
waived  in  the  course  of  their  business  with  the  assent  of  the  plaintiff. 
And  this  is  the  defense  made  by  the  defendant  to  the  action ;  but  we 
concur  with  the  district  judge  that  the  evidence  is  insufficient  to  show 
that  the  partners  came  to  a  new  arrangement  in  the  course  of  their 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  123. 
*  Part  of  the  opinion  is  omitted. 


230  RIGHTS    AND   DUTIES  OP    PARTNERS   INTER  SB 

business,  and  thereby  superseded  article  3  of  their  contract,  or  that  the 
plaintiff  ratified  the  acceptance  in  favor  of  Robertson.     * 
Judgment  affirmed. 


«     « 


II.  Right  to  Participate  in  the  Management 


KATZ  V.  BREWINGTON. 
(Court  of  Appeals  of  Maryland,  18S9.     71  Md.  79.  20  Atl.  139.) 

Charles  Brewington  filed  a  bill  of  complaint  against  Louis  Katz, 
alleging  that  in  May,  1887,  they  had  entered  into  a  copartnership  un- 
der the  name  of  L.  Katz  &  Co.,  and  that  the  business  had  been  carried 
on  under  the  firm  name  until  the  time  of  the  filing  of  the  bill.  It  was 
further  charged  that  the  books  of  the  firm  were  in  the  possession  and 
control  of  Louis  Katz,  who  refused  to  permit  complainant  to  have 
access  to  the  same,  and  that  Katz  had  sole  control  and  possession  of 
the  goods  of  the  firm,  and  was  disposing  of  the  same  in  fraud  of 
complainant;  that  complainant  no  longer  felt  safe  with  the  books 
and  assets  of  said  firm  in  the  possession  of  said  Katz,  and  desired 
that  said  copartnership  should  be  wound  up  under  the  order  and 
direction  of  this  court;  that  Katz  absolutely  excluded  complainant 
from  all  control  of  the  business,  and  refused  to  give  him  any  in- 
formation in  regard  to  the  business  of  the  firm,  having  carried  the 
books  of  the  firm  away  from  the  place  of  business  of  said  firm, 
and  refused  to  disclose  the  place  where  said  books  were  deposited. 
*  *  *  The  court  ordered  an  injunction,  and  set  down  for  hearing 
the  application  for  a  receiver,  directing  that  notice  should  be  given  to 
the  defendant.  The  notice  was  not  served  in  due  time,  but  neverthe- 
less the  parties  appeared  in  court,  by  counsel,  on  the  day  appointed 
for  the  hearing;  and,  after  the  court  had  heard  their  statements  on 
the  bill  and  exhibit,  it  appointed  a  receiver.  After  the  appointment 
of  a  receiver,  an  answer  was  filed  by  defendant,  and  an  appeal  was 
iaken.* 

Bryan,  J.  We  are,  of  course,  on  this  appeal,  confined  to  the  state- 
ments of  the  bill  of  complaint.  The  defendant  might  have  objected 
to  the  motion  for  a  receiver  on  the  ground  that  he  had  not  received 
.he  required  notice,  but  he  does  not  appear  to  have  done  so.  If  he 
had  filed  his  answer  before  the  hearing  it  would  have  been  con- 
liidered  both  in  the  court  below  and  in  this  court.  The  time  appointed 
for  the  continuance  of  the  partnership  had  expired  before  the  filing 
of  the  bill  of  complaint,  and  it  was  then  existing  only  by  the  mutual 
consent  of  partners.  The  agreement  of  partnership  required  Katz 
tc  furnish  all  the  capital,  and  the  profits  were  to  be  equally  divided 

8  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  124. 
*  Part  of  the  statement  of  facts  is  omitted. 


CONTROL   OF    MAJORITY  231 

after  payment  of  debts  and  expenses.  It  was  not  alleged  by  com- 
I)lainant  that  any  profits  had  been  made,  or  that  there  were  any  debts 
due  by  the  partnership.  It  was,  however,  alleged  that  the  defendant 
had  excluded  him  from  all  control  of  the  business  of  the  firm,  and 
had  refused  to  give  him  any  information  respecting  it,  and  had  car- 
ried away  the  books  from  the  place  of  business,  and  had  refused  to 
disclose  the  place  in  which  they  were.  Each  partner  has  an  equal 
right  to  take  part  in  the  management  of  the  business  of  the  firm.  Al- 
though one  of  them  may  have  an  interest  only  in  the  profits,  and  not 
in  the  capital,  yet  his  rights  are  involved  in  the  proper  conduct  of  the 
affairs  of  the  firm,  so  that  profits  may  be  made.  So  each  partner  has 
an  equal  right  to  information  about  the  partnership  affairs,  and  to 
free  access  to  its  books.  The  complainant  had  a  right  to  learn  from 
the  books  whether  there  were  profits,  and  whether  there  were  debts. 
If  he  were  denied  this  information,  as  charged  in  his  bill  of  complaint, 
a  sufficient  reason  appears  for  not  alleging  that  profits  had  been  earned, 
and  that  debts  existed.  In  Const  v.  Harris,  1  Turn.  &  R.  496,  Lord 
Eldon  said:  "The  most  prominent  point,  in  which  the  court  acts,  in 
appointing  a  receiver  of  a  partnership  concern,  is  the  circumstance 
of  one  partner  having  taken  upon  himself  the  power  to  exclude  an- 
other partner  from  as  full  a  share  in  the  management  of  the  partner- 
ship as  he  who  assumes  that  power  himself  enjoys."  This  principle 
seems  to  be  universally  approved  by  the  authorities.  It  is  decisive  of 
the  present  question.    The  order  must  be  affirmed. 


III.  Control  of  Majority 


JOHNSTON  et  al.  v.  BUTTON'S  ADr^I'R. 

(Supreme  Court  of  Alabama,  1855.    27  Ala.  245.) 

GoLDTnwAiTE,  J.'  The  evidence  in  this  case  tended  to  show  that 
the  appellants  and  one  Vanderslice  carried  on  in  copartnership  a  steam 
sawmill,  whicli  by  the  articles  of  copartnership  was  to  continue  at 
least  five  years ;  that  the  note  sued  on  was  given  with  the  concurrence 
of  two  of  the  partners,  Fogg  and  V'anderslice,  for  supplies  necessary  for 
the  hands  engaged  in  carrying  on  the  mill,  which  had  been  ordered  by 
one  of  them.  Upon  these  facts  alone  there  can  be  no  doubt  that  the  firm 
would  be  bound.  The  furnishing  of  supplies  to  those  engaged  in  the 
immediate  direction  of  the  business  was  essential  to  the  conducting 
of  it,  and  within  the  scope  of  the  purpose  for  which  the  individuals  had 
associated ;  and  the  authority  of  either  of  the  partners  to  purchase 
such  supplies,  and  give  the  note  of  the  firm,  cannot  be  questioned. 

6  For  a  discussion  of  principles,  see  Gilmore  on  Tartnerslaip,  §  125. 
«  Statement  of  facts  is  omitted. 


232  RIGHTS    AND   DUTIES   OF    PARTNERS  INTER  SB 

The  principal  ground  of  objection,  however,  is  that  the  evidence 
proved  that,  before  the  goods  were  furnished  and  the  note  given,  the 
appellant  Johnston  gave  notice  to  the  public  that  he  would  not  be  re- 
sponsible for  any  future  debt  contracted  on  account  of  the  copartner- 
ship, and  that  this  notice  wa.s  brought  home  to  the  party  with  whom 
the  debt  was  contracted ;  and  it  is  insisted  that  its  efifect  was  to  revoke 
the  authority  of  the  other  partners,  so  far  as  he  was  concerned,  to  bind 
the  firm  from  that  time. 

It  is  to  be  observed  that  in  the  present  case  the  contract  was  con- 
curred in  by  two  members  of  the  firm ;   and  the  question,  therefore,  is 
as  to  the  right  of  the  majority  to  bind  the  other  partners,  against  their 
dissent,  as  to  matters  appertaining  to  the  common  business,  and  in  the 
absence  of  any  stipulation  conferring  that  power  in  the  articles  of  co- 
partnership.   This  question  is  a  new  one  in  this  court,  and,  indeed,  we 
have  found  no  case  in  which  it  has  been  expressly  decided.     Both  in 
England  and  the  United  States  there  are  cases  which  assert  the  gen- 
eral proposition  that  a  partner  may  protect  himself  against  the  con- 
sequences of  a  future  contract,  by  giving  notice  of  his  dissent  to  the 
party  with  whom  it  is  about  to  be  made.     Gallway  v.  Matthew,  10 
East,  264;    Willis  v.  Dyson,  1  Stark.  164;   Vice  v.  Fleming,  1  Y.  & 
Jerv.  227,  230;  Leavitt  v.  Peck,  3  Conn.  125,  8  Am.  Dec.  157;  Feigley 
V.  Sponeberger,  5  Watts  &  S.  (Pa.)  564;   Monroe  v.  Connor,  15  Me. 
178,  32  Am.  Dec.  148.    And  where  the  firm  consists  of  but  two  persons, 
and  there  is  nothing  in  the  articles  to  prevent  each  from  having  an 
equal  voice  in  the  direction  and  control  of  the  common  business,  the 
correctness  of  the  proposition  cannot  be  questioned.     In  such  case  the 
duty  of  each  partner  would  require  him  not  to  enter  into  any  contract 
from  which  the  other  in  good  faith  dissented ;  and,  if  he  did,  it  would 
be  a  violation  of  the  obligations  which  were  imposed  by  the  nature  of 
the  partnership.     It  would  not,  in  fact,  be  the  contract  of  the  firm; 
and  the  party  with  whom  it  was  made,  having  notice,  could  not  en- 
force it  as  such.    So,  if  the  firm  was  composed  of  more  than  two  per- 
sons, and  one  of  them  dissented,  the  party  with  whom  the  contract  is 
made  acts  at  his  peril,  and  cannot  hold  the  dissenting  partner  liable, 
unless  his  liability  results  from  the  articles  or  from  the  nature  of  the 
partnership  contract.    All  the  cases  can  be  sustained  on  this  principle ; 
and  it  is  in  strict  analogy  with  the  civil  law,  which  holds,  where  the 
stipulations  of  the  partnership  expressly  intrust  the  direction  and  con- 
trol of  the  business  to  one  of  the  partners,  that  the  dissent  of  the  other 
would  not  avail,  if  the  contract  was  made  in  good  faith.     Pothier, 
Traite  du  Com.  de  Soc.  Nos.  71,  90.    And  such,  also,  we  think,  is  the 
mle  of  the  common  law.    Const  v.  Harris,  Turn.  &  Russ.  496;   Story 
on  Part.  §  121.     Were  it  otherwise  it  would  be  denying  to  parties  the 
right  to  make  their  own  contracts.     If  our  views  as  to  the  governing 
force  of  express  stipulations  are  correct,  the  effect  of  such  terms  or 
conditions  as  result  by  clear  implication  from  the  articles,  or  arise  out 
of  the  nature  of  the  partnership,  must  be  the  same.    It  is  as  if  they 
had  been  expressly  provided. 


CONTKOL   OF   MAJOEITY  233 

Now,  whenever  a  partnership  is  formed  by  more  tlian  two  persons, 
we  think  tliat  in  the  absence  of  any  express  provision  to  the  contrary 
there  is  always  an  imphed  understanding  that  the  acts  of  the  ma- 
jority are  to  prevail  over  those  of  the  minority  as  to  all  matters  within 
the  scope  of  the  common  business ;  and  such  we  understand  to  be  the 
doctrine  asserted  by  Lord  Eldon  in  Const  v,  Harris,  supra,  and  such 
was  the  opinion  of  Judge  Story.  Story  on  Part.  §  123 ;  3  Kent's  Com. 
(5th  Ed.)  45.  The  rule  as  thus  laid  down  is  certainly  more  reasonable 
and  just  than  to  allow  the  minority  to  stop  the  operations  of  the  con- 
cern against  the  views  of  the  majority.  We  do  not  say  that  it  would 
be  a  bona  fide  transaction,  so  as  to  bind  the  firm,  if  the  majority  choose 
wantonly  to  act  without  information  to  or  consultation  with  the  mi- 
nority. Story  on  Part.  §  123.  But  when,  as  in  the  present  case,  the 
one  partner  has  given  notice,  and  expressed  his  dissent  in  advance, 
there  could  be  no  reason  or  propriety  in  requiring  him  to  be  consulted 
by  the  other  two. 

We  do  not  consider  the  cases  to  which  we  have  been  referred,  hold- 
ing that  one  partner  has  the  right  at  pleasure  to  dissolve  a  partnership, 
although  the  articles  provide  that  it  is  to  continue  for  a  specified  term 
(Marquand  v.  Mfg.  Co.,  17  Johns.  [N.  Y.]  525;  Skinner  v.  Dayton, 
19  Johns.  [N.  Y.]  513,  10  Am.  Dec.  286),  as  having  any  bearing  on  the 
case  under  consideration.  Conceding  they  are  law — which  is  doubtful 
(Story  on  Partn.  §  275,  note  3,  and  cases  there  cited) — the  decision 
rests  solely  upon  the  ground  that  the  limitation  on  the  right  of  dissolu- 
tion is  incompatible  with  the  nature  of  the  copartnership  contract ;  and 
this  principle  does  not  militate  against  the  position  we  have  asserted. 
The  dissent,  in  the  present  case,  cannot  be  regarded  as  a  dissolution ; 
for,  if  effectual,  it  would  not  necessarily  produce  that  result,  although 
it  might  operate  to  change  the  mode  of  conducting  the  business.  In 
other  words,  it  might  be  carried  on  without  contracting  debts. 

Our  conclusion  is  that  the  act,  being  concurred  in  by  two  of  the 
partners,  was,  under  the  circumstances,  the  act  of  the  firm,  an^  that 
the  charge,  asserting  the  proposition  that  the  dissent  of  one  partner 
against  the  other  two  would  necessarily  exonerate  him,  was  properly 
refused. 

Judgment  affirmed. 


MONROE  V.  CONNER  et  al. 

(Supreme  Judicial  Court  of  Maine,  1838.     15  Me.  178,  32  Am.  Dec.  14S.) 

Assumpsit  against  James  Conner  and  William  Coleman.  Conner 
lived  at  Gardiner,  and  owned  a  carding  and  fulling  mill  at  Unity. 
The  business  of  carding  wool  and  dressing  cloth  was  carried  on  at 
that  mill  by  Coleman,  and  the  articles  charged  were  furnished  by  the 
plaintiff  and  delivered  at  the  mill.  The  plaintiff  claimed  to  recover 
against  both,  on  the  ground  that  Conner  and  Coleman  were  partners 
in  the  business  carried  on  at  that  mill.     No  articles  of  copartnership 


234  RIGHTS    AND   DUTIES  OF    PARTNERS   INTER  SB 

were  produced  or  proved  to  have  been  made,  and  the  plaintiff  relied 
on  other  evidence  tending  to  prove  the  partnership.  Conner  denied 
the  partnership,  and  offered  evidence  tending  to  prove  that  he  had 
given  notice  to  the  plaintiff  that  he  would  not  be  holden  on  any  con- 
tracts made  by  Coleman.  The  counsel  for  Conner  requested  the 
judge  to  instruct  the  jury  that  if  Conner  notified  the  plaintiff's  agent, 
who  delivered  all  the  articles,  before  the  delivery,  that  he,  Conner, 
would  not  be  holden  for  anything  unless  delivered  by  his  order,  then 
Conner  is  not  holden  for  anything  delivered  to  Coleman  after  such  no- 
tice. The  judge  did  not  give  this  instruction,  but  did  instruct  them 
that  if,  from  the  evidence  in  the  case,  they  were  satisfied  that  the 
defendants  were  copartners,  such  notice  would  not  discharge  Conner 
from  further  liabilities,  unless  he  should  show  them  that  by  the  con- 
ditions of  the  copartnership  such  power  was  reserved  to  Conner.  At 
the  request  of  Conner's  counsel  the  jury  were  directed  to  find  whether 
such  notice  was  or  was  not  given.  The  jury  found  a  verdict  for  the 
plaintiff,  and  also  found  that  such  notice  had  been  given.  Conner 
filed  exceptions. 

Shepley,  J.  The  question  presented  in  this  bill  of  exceptions  is 
one  of  no  inconsiderable  importance  in  a  mercantile  community,  and 
there  is  found  to  be  some  difference  of  opinion  respecting  it.  The 
general  rule  is  that  the  contract  of  one  partner  binds  all  in  transac- 
tions relating  to  the  partnership,  and  this  rule  prevails  when  the  part- 
ner making  the  contract  applies  the  fruits  of  it  to  his  own  private  use, 
if  the  contract  is  made  in  the  usual  course  of  business,  and  the  ap- 
propriation be  unknown  to  the  other  party  to  the  contract.  So  one 
partner  can  make  purchases,  and  can  sell,  pledge,  and  assign  the  part- 
nership goods,  and  in  these  acts  bind  all  the  partners. 

When  a  partnership  becomes  known,  and  its  course  of  dealing  has 
been  established,  all  are  at  liberty  to  regard  one  as  acting  lor  tl-e 
benefit  of  all  the  partners  in  this  accustomed  course  of  dealing.  If  it 
were  not  so,  there  could  be  no  safety  in  commercial  contracts  of  this 
character.  But  the  right  of  one  partner  to  bind  all  rests  upon  the 
principle  that  all  have  agreed  that  he  should  do  so. 

This  agreement  is  either  expressed,  or  implied  by  law  from  the 
nature  of  the  association  or  from  the  customary  course  of  dealing. 
There  is  nothing  inconsistent  with  this  rule  in  allowing  one  of  the 
partners  to  dissolve  the  contract  of  partnership,  giving  due  notice  that 
such  power  to  bind  him  has  ceased  to  exist.  This  he  may,  without  doubt, 
do  where  there  is  no  special  agreement  that  the  partnership  shall  con- 
tinue for  a  definite  period,  which  is  yet  unexpired.  Whether  one  part- 
ner may  dissolve  the  partnership  before  the  agreed  time  expires  may 
admit  of  doubt.  Upon  principle,  however,  it  would  seem  that  it  was 
only  for  the  other  party  to  that  contract  to  complain;  it  being  of  no 
importance  to  others  whether  they  violate  contracts  between  them- 
selves, if  full  notice  is  given,  so  that  others  may  understand  to  whom 
they  are  to  give  credit.    Kent  evidently  inclines  to  the  opinion  that  the 


CONTROL   OF   MAJORITY  235 

dissolution  may  take  place.  3  Com.  54.  And  such  is  the  law  in  New 
York  (Marquand  v.  Mfg.  Co.,  17  Johns.  625;  Skinner  v.  Dayton, 
19  Johns.  538,  10  Am.  Dec.  28C)  ;  while  the  law  would  appear  to  be 
different  in  England  (16  Ves.  5G;  1  Swanst.  495).  It  does  not,  how- 
ever, become  necessary  to  express  any  opinion  upon  this  point,  as  there 
is  no  proof  in  the  present  case  that  the  partnership  was  formed  for 
any  dcfmite  period.  In  such  cases  it  is  admitted  that  one  partner  may 
by  notice  dissolve,  and  thus  prevent  those  having  such  notice  from 
making  further  contracts  to  bind  the  partnership.  If  such  a  power 
exist  as  to  all  persons,  it  would  be  difficult  to  deny  that  one  partner 
could  protect  himself  against  a  particular  contract  by  actual  notice 
that  he  dissented  from  it  before  it  was  concluded.  Such  a  notice  re- 
moves the  foundation  upon  which  the  right  rests  to  charge  all  the 
partners  upon  the  contract  of  one.  It  leaves  no  longer  the  presumption 
that  one  acts  for  all,  by  the  consent  of  all.  And  if,  after  such  actual 
notice,  a  person  will  give  credit,  he  cannot  reasonably  complain  that 
he  cannot  obtain  payment  from  him  who  has  notified  him  not  to  give 
the  credit.  The  only  difficulty  arises  in  relieving  the  partner  giving 
such  notice  from  the  payment  when  the  fruits  of  the  contract  have 
been  enjoyed  by  the  partnership,  of  which  he  still  continues  to  be  a 
member.  In  Willis  v.  Dyson,  1  Stark.  164,  Lord  Ellenborough  held 
that  "it  would  be  necessary  for  the  party  sending  goods  after  such 
notice  to  prove  some  act  of  adoption  by  the  partner  who  gave  the 
notice,  or  that  he  had  derived  some  benefit  from  the  goods."  Gow, 
Part.  69,  states  that,  "to  recover  in  an  action  for  goods  sold  after  such 
countermand,  he  must  show  that  the  sale  was  adopted  by  the  dis- 
sentient partner,  or  that  he  had  derived  a  benefit  from  the  delivery." 
Kent  (volume  3,  p.  45)  remarks  "that  the  seller  must  show  a  subse- 
quent assent  of  the  other  partners,  or  that  the  goods  came  to  the  use  of 
the  firm."  Both  these  jurists  refer  to  the  case  of  Willis  v.  Dyson  as 
authority.  It  is  quite  obvious  that  there  may  be  a  difference  between 
the  goods  coming  to  the  use  of  the  firm  and  a  benefit  derived  to  the  dis- 
senting partner  from  their  dehvery  to  the  firm.  The  bargain  may 
have  proved  to  be  a  very  losing  one,  and  this  may  have  been  fore- 
seen by  the  dissenting  partner,  and  have  been  the  very  cause  of  the 
notice;  and  why  should  he  be  held  to  pay,  perhaps  from  his  private 
property,  for  goods  the  purchase  and  sale  of  which  may  have  absorbed 
the  whole  partnership  stock,  when  he  had  provided  against  such  cal- 
amity by  expressing  his  dissent  from  the  contract  before  it  was  con- 
summated ? 

In  the  case  of  Galway  v.  IMatthew  et  al.,  10  East,  264,  one  partner, 
after  the  otlier  partner  had  given  notice  of  his  dissent,  signed  a  note 
with  the  name  of  the  partnership,  and  received  the  money  and  applied 
most  of  it  to  the  payment  of  the  partnership  debts;  and  the  decision 
was  against  the  right  to  charge  the  dissenting  partner. 

In  the  case  of  Leavett  v.  Peck,  3  Conn.  124,  8  Am.  Dec.  157,  the 
fruits  of  the  contract  went  to  the  partnership,  and  yet  the  dissenting 
partner  was  held  not  to  be  liable. 


236  RIGHTS    AND   DUTIES   OF    PARTNERS   INTER   SB 

Govv  States  that  in  negotiable  instruments  one  partner  cannot  bind 
another  who  dissents  and  gives  notice  of  it,  and  alludes  to  no  qualifi- 
cation, where  the  fruits  of  the  contract  are  applied  to  the  use  of  the 
partnership.  Gow,  65.  Collyer,  214,  says:  "It  seems,  also,  that  the 
mere  disclaimer  by  one  partner  of  the  future  contracts  of  his  copartner 
will  be  binding  on  third  persons,  whatever  be  the  effect  of  such  an 
act  between  themselves,  or  whether  it  be  or  be  not  in  conformity  to 
the  partnership  agreement."  He  afterwards  also  states  the  case  of 
Willis  V.  Dyson  in  the  language  of  the  court.  Kent,  after  making  the 
remark  before  stated,  examines  the  cases,  and  as  the  result  of  it  says : 
"It  seems,  also,  to  be  the  better  opinion  that  it  is  in  the  power  of  any 
one  partner  to  interfere  and  arrest  the  firm  from  the  obligation  of  an 
rnchoate  purchase,  which  is  deemed  injurious."  This  he  could  not  do 
if  he  were  bound  by  the  goods  coming  to  the  use  of  the  firm.  It  ap- 
pears to'  be  more  in  accordance  with  the  general  principles  of  law, 
and  with  good  faith  and  fair  dealing,  to  hold  that  a  partner  is  not 
bound  by  a  contract  after  he  has  given  notice  to  the  party  proposing 
to  make  it  that  he  would  not  be  bound  by  it. 

Exceptions  sustained,  and  new  trial  granted. 


IV.  Right  to  Information  Concerning  Business^ 


YORKS  V.  TOZER. 

(Supreme  Court  of  Minnesota,  1894.    59  Minn.  78,  60  N.  W.  846,  28  L.  R.  A. 
86,  50  Am.  St.  Rep.  395.) 

Action  by  Thomas  J.  Yorks  against  David  Tozer  for  an  accounting 
between  plaintiff  and  defendant,  as  partners,  and  to  recover  money  paid 
under  the  partnership  agreement.  Judgment  for  plaintiff,  and  defend- 
ant appeals. 

Canty,  J.  It  is  conceded  by  both  parties,  and  found  by  the  court, 
that  the  plaintiff  and  defendant  were  partners  in  the  purchase  of  a 
tract  of  land ;  that  it  was  agreed  by  and  between  them  that  the  title 
should  be  taken  in  the  name  of  defendant;  that  he  should  advance 
the  purchase  price,  and  pay  the  taxes,  and  plaintiff  should  sell  the 
land,  and,  after  repaying  defendant  the  money  so  advanced  by  him 
and  7  per  cent,  interest  thereon,  the  balance  of  the  proceeds  of  such 
sale  should  be  divided  equally  between  them.  The  land  was  so  pur- 
chased April  23,  1883,  for  $450,  and  the  title  so  taken.  The  land  was 
sold  and  conveyed  by  defendant  August  6,  1890,  for  $1,560.  Said 
purchase  money  and  the  taxes  paid  by  defendant,  and  interest  on  all 
of  the  same  up  to  the  time  of  said  sale,  amount  to  $807.33,  leaving 
$752.68,  the  balance  of  the  proceeds  of  said  sale,  so  to  be  divided  be- 
tween them.    This  action  is  brought  for  an  accounting  and  a  recovery 

t  For  a  discussion  of  principles,  see  Gilmcre  on  Partnership,  §  126. 


RIGHT  TO   INFOEMATION   CONCEBNINQ    BUSINESS  237 

of  the  SLim  due  plaintiff  under  said  agreement,  and  the  trial  court 
awarded  plaintiff  one-half  of  said  balance  of  $752. G8,  and  from  the 
judgment  entered  thereon  defendant  aj^peals.  There  is  no  settled  case, 
and  the  error  assigned  is  that  the  judgment  is  not  sustained  by  the 
findings  of  fact. 

The  court  further  finds  that  in  July,  1890,  without  the  knowledge 
of  plaintiff,  defendant  negotiated  a  sale  of  said  land  to  said  purchaser; 
that  the  purchaser  procured  an  abstract  of  title  to  said  real  estate  from 
the  register  of  deeds ;  that  said  abstract  was  in  fact  false,  as  it  omit- 
ted one  recorded  conveyance,  a  link  in  the  chain  of  title,  and  by  such 
abstract  it  appeared  that  the  original  patentee  was  still  the  owner  in 
fee  of  the  land,  whereas  in  fact  defendant  had  a  good  title  of  record; 
that  the  purchaser  submitted  the  abstract  to  two  different  and  com- 
petent attorneys,  who  each  advised  him  that,  according  to  the  ab- 
stract, the  defendant  had  no  title,  and  defendant  was  informed  by  such 
purchaser  of  the  opinion  of  said  attorneys.  Defendant,  believing  he 
had  no  title,  at  an  expense  of  $526,  then  procured  a  conveyance  to 
himself  from  said  original  patentee,  and  claims  that  this  expense 
should  be  allowed  him  in  said  accountmg  as  a  part  of  the  cost  of  the 
land  to  be  deducted  from  such  proceeds  of  said  sale,  and  that  plaintiff 
is  entitled  to  only  one-half  of  the  balance  of  such  proceeds,  after  this 
$526  is  also  deducted  therefrom.  It  is  further  found  by  the  court 
that  defendant  did  not  inform  plaintiff  of  any  of  said  negotiations, 
or  of  the  apparent  defect  in  said  title,  or  show  him  or  inform  him  of 
said  abstract,  or  consult  him  as  to  purchasing  the  supposed  title  of  said 
patentee,  and  that  plaintiff  had  no  knowledge  or  notice  of  any  of 
these  things,  or  of  the  sale  of  said  property  to  said  purchaser  from  de- 
fendant, until  after  the  deed  thereof  was  recorded,  and  he  discovered 
it  by  an  examination  of  the  records;  "that  had  said  defendant  ex- 
hibited said  abstract  of  title  to  said  plaintiff,  or  informed  him  in  what 
respect  said  title  of  said  defendant  was  claimed  to  be  defective,  said 
plaintiff  could  at  once  have  informed  said  defendant  that  said  abstract 
was  not  a  true  and  correct  abstract  of  title  to  said  lands ;"  and  "that 
plaintiff  was  not  in  any  manner  ever  consulted  by  defendant  in  regard 
to  said  supposed  defect  of  title."  The  court  further  finds  that  defend- 
ant acted  in  good  faith  in  the  sale  of  the  land,  and  in  expending  said 
sum  of  $526  in  attempting  to  cure  the  supposed  defect  in  his  title,  but 
holds  that  he  cannot  compel  plaintiff  to  stand  one-half  or  any  part  of 
such  expense.  We  are  of  the  same  opinion.  If  defendant  did  not 
act  in  bad  faith,  he  was,  to  say  the  least,  grossly  negligent.  It  does 
not  appear  that  the  plaintiff  was  not  accessible  and  could  not  be  com- 
municated with  in  a  reasonable  time.  This  land  was  the  only  partner- 
ship property,  and  its  purchase  and  sale  was  the  only  partnership  busi- 
ness. It  was  not  an  act  in  the  usual  course  of  the  partnership  busi- 
ness, but  one  which  went  to  the  very  foundation  of  the  partnership. 
It  is  found  by  the  court  that  the  plaintiff,  and  not  the,  defendant,  con- 
ducted the  negotiations  for  the  purchase  of  this  land,  and  procured  the 
conveyance  to  defendant;    and  he  should  be  presumed  to  have  had 


238  RIGHTS    AND   DUTIES   OF    PARTNERS   INTER   SB 

some  knowledge  of  the  state  of  the  title.  No  reason  is  given  by  de- 
fendant why  all  the  negotiations  for  the  sale  of  the  land  and  the  pur- 
chase of  this  supposed  title  by  him  were  kept  secret  from  plaintiff.  In 
every  important  exigency  the  partner  about  to  act  should  consult  the 
other  partner,  at  least  if  there  are  no  circumstances  which  excuse  him 
from  so  doing.    The  order  appealed  from  should  be  affirmed. 


V.  Duty  to  Devote  Themselves  to  the  Business  and  to  Exercise 

Care  and  Skill  * 


IMATTINGLY  v.  STONE'S  ADM'R. 
(Court  of  Appeals  of  Kentucky.  1896.    35  S.  W.  921,  18  Ky.  Law  Rep.  187.) 

Pryor,  C.  J.  By  the  terms  of  a  written  contract  between  M.  P. 
Mattingly  and  W.  S.  Stone,  the  latter  became  interested  as  a  partner 
of  the  former  in  two  distilleries, — one,  the  "Old  W.  S.  Stone  Dis- 
tillery" ;  the  other,  the  "Daviess  County  Club  Distillery."  The  con- 
sideration for  the  interest  was  the  transfer  by  Stone  to  Mattingly  of 
the  exclusive  use  of  a  valuable  brand  belonging  to  Stone,  and  which 
Mattingly  desired  to  appropriate  to  his  own  use,  or  that  of  the  two 
distilleries.  The  interest  of  Stone  was  the  one-eighth  part  of  the 
stock  ($30,000)  in  the  Daviess  County  Club  Distillery,  and  an  interest 
of  one-eighth  in  the  Old  W.  S.  Stone  Distillery,  its  property  and  ap- 
purtenances ;  the  latter  to  share  in  the  profits  after  a  certain  period, 
in  proportion  to  his  interests.  Each  party  was  to  render  services, 
Stone  running  the  one  distillery,  and  Mattingly  the  other.  The  general 
control  of  the  business  was  given  to  Mattingly. 

The  partners  failed  to  prosecute  their  business  amicably,  and  certain 
suits  followed,  in  one  of  which  Stone  brought  an  action  to  recover  for 
his  services,  and  failed,  and  Mattingly  an  action  to  rescind  the  con- 
tract, with  like  results,  neither  being  entitled  to  relief.  The  present 
action  was  instituted  by  Stone  for  a  settlement  of  the  partnership,  to 
which  various  defenses  were  made.  The  appellant  insists  that  there 
was  no  partnership,  but  a  mere  sale,  and  that  Stone  was  entitled  to 
rents  for  his  interest,  and  not  profits.  Counsel  for  the  appellant  in 
the  cases  heretofore  decided  construed  the  contract  as  constituting  a 
partnership,  but,  whether  so  or  not,  it  is  plain  the  parties  were  part- 
ners by  its  terms,  and  a  settlement  should  be  had. 

The  question  of  more  difficulty  than  any  other  arises  from  the  con- 
tention of  the  appellant  that  the  partnership  was  dissolved  in  March, 
1885,  when  the  former  suits  were  instituted,  and  the  parties  ceased  to 
have  any  business  intercourse ;  but  assuming,  as  we  shall  do,  that  the 

8  For  a  discussion  of  principles,  see  Gilinore  on  Partnership,  §  128. 


DUTY   AS   TO   THE   BUSINESS 


239 


partnership  continued,  and  that  Mattingly  had  no  power  to  end  the 
partnership  at  his  will  or  pleasure,  it  then  becomes  proper  to  ascertain 
the  balance  due,  if  anything,  by  Mattingly  to  Stone.  Mattingly  claims 
that  he  has  sustained  damages  by  reason  of  Stone's  permitting  other 
parties  to  use  this  brand  after  September,  1883,  when  its  exclusive  use 
was  with  Mattingly.  There  is  nothing  in  this  defense,  and  the  fact 
that  the  Owensboro  Distilling  Company  was  to  use  the  brand  until 
December,  1887,  was  known  to  Mattingly  at  the  time  of  his  contract 
and  the  entire  defense  as  to  its  use  by  others  is  an  afterthought,  with 
no  merit  in  it. 

The  appellant  claims  compensation  for  the  management  and  con- 
duct of  the  business,  which  was  disallowed  by  the  chancellor,  anc^ 
this,  we  think,  is  an  error.  The  parties,  by  the  terms  of  the  written 
contract,  were  each  to  perform  services,  and  to  render  that  assistance 
necessary  to  the  proper  conduct  of  the  business  ;  and  when  Stone  stood 
by  and  saw  the  entire  management  of  the  distilleries  conducted  by 
Mattingly,  with  his  (Mattingly's)  own  capital,  his  labor  and  skill,  it 
is  neither  just  nor  equitable  that  he  should  be  allowed  nothing,  and 
Stone  awarded  his  share  of  the  profits,  as  if  he  had  been  an  active 
partner.  The  report  of  the  commissioner  to  whom  the  case  was  re- 
ferred is  plain,  concise,  and  brief,  in  which  he  states  that  "Mattingly 
furnished  all  the  capital  to  carry  on  the  business  for  repairs,  paid  tax- 
es and  insurance,  and,  in  fact,  all  the  capital  used  in  carrying  on  the 
business  at  both  houses,  and  the  proof  shows  that  to  furnish  the  cap- 
ital and  manage  the  business  was  worth  $5,000  per  annum.  There  was 
paid  to  Stone  by  Mattingly  $1,992,  or  he  obtained  that  much  from 
the  business.  Stone  rendered  no  service  in  operating,  taking  care  of, 
or  managing  the  distilleries."  With  this  report,  the  chancellor  charged 
Stone  with  the  $1,992  he  had  received,  and  credited  him  by  his  one- 
eighth  of  the  profits,  which  was  $5,482.84,  leaving  due  Stone  by  Mat- 
tingly $3,490.57,  for  which  judgment  was  rendered. 

While  we  think  $5,000  per  annum  for  the  six  years  is  too  much 
to  allow  Mattingly  for  the  management  of  the  business,  furnishing 
capital,  etc.,  he  ought  to  be  allowed  not  less  than  $3,000  per  annum, 
which  for  the  six  years  would  be  $18,000.  one-eighth  of  which  should 
be  charged  to  Stone.  The  one-eighth  would  be  $2,250,  and  add  to  this 
the  $1,992  Stone  had  received,  makes  $4,242.  This  sum  taken  from 
Stone's  part  of  the  net  profits  as  reported,  $5,482.84,  leaves  Mat- 
tingly indebted  to  Stone  in  the  sum  of  $1,240.84,  for  which  judgment 
should  be  rendered  after  first  charging  the  net  profits  with  the  court's 
cost  of  the  litigation  below.  Reversed  and  remanded,  that  this  may  be 
done. 


1*4:0  BIGHTS    AND   DUTIES  OF    PARTNERS  INTER  SB 


VI.  Duty  to  Observe  Good  Faith* 


BURTON   V.   WOOKEY. 
(In  Chancery,  before  Sir  John  Leach,  V.  C,  1822.    6  Madd,  367.) 

The  plaintiff  and  defendant  entered  into  partnership  together  to 
deal  in  lapis  calaminans.  The  defendant,  who  was  a  shopkeeper,  was 
to  take  the  active  part  in  the  concern,  and  to  purchase  the  lapis  cal- 
aminaris  from  the  miners,  in  whose  neighborhood  he  lived.  Many 
of  the  miners  were,  betore  the  partnership,  in  the  habit  of  dealing  at 
his  shop,  and  continued  so  for  some  years  after  the  partnership,  re- 
ceiving from  the  defendant  ready  money  for  the  lapis  calaminaris, 
and  paying  for  their  shop  goods  afterwards  as  they  would  have  done 
to  any  shopkeeper;  but  in  the  year  1817  or  1818,  owing,  as  the  de- 
fendant alleged,  to  the  distress  of  the  times,  a  new  course  of  dealing 
took  place  between  the  defendant  and  the  miners.  In  the  place  of 
paymg  them  for  the  lapis  calaminaris  with  money,  he  paid  them  with 
shop  goods,  and  in  his  account  with  the  plaintiff  he  charged  him  as 
for  cash  paid  to  the  amount  of  the  price  of  the  goods. 

The  question  was  whether  he  could  justify  this  charge,  or  whether 
he  must  divide  the  profit  made  by  him  on  the  sale  of  the  goods  with  the 
plaintiff. 

The  Vice  Chancellor.  It  is  a  maxim  of  courts  of  equity  that  a 
person  who  stands  in  a  relation  of  trust  or  confidence  to  another  shall 
not  be  permitted,  in  pursuit  of  his  private  advantage,  to  place  him- 
self in  a  situation  which  gives  him  a  bias  against  the  due  discharge  of 
that  trust  or  confidence.  The  defendant  here  stood  in  a  relation  of 
trust  or  confidence  towards  the  plaintiff,  which  made  it  his  duty  to 
purchase  the  lapis  calaminaris  at  the  lowest  possible  price.  When,  in 
the  place  of  purchasing  the  lapis  calaminaris,  he  obtained  it  by  barter 
for  his  own  shop  goods,  he  had  a  bias  against  a  fair  discharge  of  his 
duty  to  the  plaintiff.  The  more  goods  he  gave  in  barter  for  the  ar- 
ticle purchased,  the  greater  was  the  profit  which  he  derived  from  the 
dealing  in  store  goods,  and  as  this  profit  belonged  to  him  individually, 
and  as  the  saving  by  a  low  price  of  the  article  purchased  was  to  be 
equally  divided  between  him  and  the  plaintiff,  he  had  plainly  a  bias 
against  the  due  discharge  of  his  trust  or  confidence  towards  the 
plaintiff.  I  must  therefore  decree  an  account  of  the  profit  made  by 
the  defendant  in  his  barter  of  goods,  and  must  declare  that  the  plain- 
tiff is  entitled  to  an  equal  division  of  that  profit  with  the  plaintiff. 

»  For  a  discussion  of  principles,  see  Gilmore  on  Partnerstiip,  §§  129-132. 


DUTY   TO   OBSEKVE   GOOD   FAITH  241 

MITCHELL    V.    REED. 

(Conimission  of  Aiipeals  of  New  York,  1876.    Gl  N.  Y.  123,  19  Am.  Rep.  252..'> 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme  Court 
in  the  First  Judicial  Department,  affirming  a  judgment  in  favor  of 
defendant,  entered  upon  decision  of  the  court  at  Special  Term, 

This  action  was  brought  to  have  certain  leases,  obtained  by  the  de- 
fendant during  the  existence  of  a  copartnersliip  between  him  and 
plaintiff,  for  terms  to  commence  at  its  termination,  of  premises  leased 
and  occupied  by  the  firm,  declared  to  have  been  taken  for  the  partner- 
ship, and  to  have  it  adjudged  that  the  defendant  held  them  as  trustee 
for  the  partnership.     *     *     *  . 

The  court  found,  as  conclusions  of  law,  that  the  defendant.  Reed, 
was  the  sole  owner  of  the  leases  executed  to  him  as  aforesaid,  and 
that  the  plaintiff  had  no  right,  title,  or  interest  in  or  to  them,  or  ei- 
ther of  them,  and  that  the  defendant  have  judgment  accordingly,  to 

which  plaintiff  duly  excepted.     Judgment  was  rendered  accordingly. 
4i     *     « 

EarL;  C.^°  The  relation  of  partners  with  each  other  is  one  of  trust 
and  confidence.  Each  is  the  general  agent  of  the  firm,  and  is  bound  to 
act  in  entire  good  faith  to  the  other.  The  functions,  rights,  and  duties 
of  partners  in  a  great  measure  comprehend  those  both  of  trustees  and 
agents,  and  the  general  rules  of  law  applicable  to  such  characters  are 
applicable  to  them.  Neither  partner  can,  in  the  business  and  affairs 
of  the  firm,  clandestinely  stipulate  for  a  private  advantage  to  himself. 
He  can  neither  sell  to  nor  buy  from  the  firm  at  a  concealed  profit  to 
himself.  Every  advantage  which  he  can  obtain  in  the  business  of  the 
firm  must  inure  to  the  benefit  of  the  firm.  These  principles  are  ele- 
mentary, and  are  not  contested.  Story,  §§  174,  175 ;  Collyer,  §§  181, 
182.  It  has  been  frequently  held  that  when  one  partner  obtains  the  re- 
newal of  a  partnership  lease  secretly,  in  his  own  name,  he  will  be  held 
a  trustee  for  the  firm  as  to  the  renewed  lease.  It  is  conceded  that 
this  is  the  rule  where  the  partnership  is  for  a  limited  term,  and  either 
partner  takes  a  lease  commencing  within  the  term;  but  the  contention 
is  that  the  rule  does  not  apply  where  the  lease  thus  taken  is  for  a  term 
to  commence  after  the  expiration  of  the  partnership  by  its  own  limita- 
tion, and  whether  this  contention  is  well  founded  is  one  of  the  grave 
questions  to  be  determined  upon  this  appeal. 

It  is  not  necessary,  in  maintaining  the  right  of  the  plaintiff  in  this 
case,  to  hold  that  in  all  cases  a  lease  thus  taken  shall  inure  to  the 
benefit  of  the  firm,  but  whether,  upon  the  facts  of  this  case,  these 
leases  ought  to  inure  to  the  benefit  of  this  firm.  I  will  briefly  allude 
to  some  of  the  promment  features  of  this  case.  These  parties  had 
been  partners  for  some  years.     They  were  equal  in  dignity,  although 

10  The  stuteiiiout  of  facts,  part  of  tlie  opiniou  of  Earl,  C,  and  the  opinion 
of  Dwigbt,  C,  are  omitted. 
Gilm.Paut.— 16 


"i^  RIGHTS    AND   DUTIES   OF    PARTNERS   INTER   SB 

their  interests  differed.  The  plaintiff  was  not  a  mere  subordinate  in 
the  lirm,  but,  so  far  as  appears,  just  as  important  and  efficient  in  its 
affairs  as  the  defendant.  They  procured  the  exclusive  control  of  the 
leases  of  the  property,  to  terminate  May  1,  1871,  and  their  partnership 
was  to  terminate  on  the  same  day.  They  expended  many  thousand 
dollars  in  fitting  up  the  premises,  a  portion  thereof  after  the  new 
leases  were  obtained,  and  they  expended  a  very  large  sum  in  furnish- 
ing them.  By  their  joint  skill  and  influence  they  built  up  a  very  large 
and  profitable  business,  which  largely  enhanced  the  rental  value  of  the 
premises.  More  than  two  years  before  the  expiration  of  their  leases 
and  of  their  partnership  the  defendant  secretly  procured,  at  an  in- 
creased rent,  in  his  own  name,  the  new  leases,  which  are  of  great 
value.  Although  the  plaintiff  w^as  in  daily  intercourse  with  the  de- 
fendant, he  knew  nothing  of  these  leases  for  about  a  year  after  they 
had  been  obtained.  There  is  no  proof  that  the  lessors  would  not  have 
leased  to  the  firm  as  readily  as  to  the  defendant  alone.  The  permanent 
fixtures,  by  the  terms  of  the  leases,  at  their  expiration  belonged  to  the 
lessors.  But  the  movable  fixtures  and  the  furniture  were  worth  vastly 
more  to  be  kept  and  used  in  the  hotel  than  to  be  removed  elsewhere. 
Upon  these  facts  I  can  entertain  no  doubt,  both  upon  principle  and 
authority,  that  these  leases  should  be  held  to  inure  to  the  benefit  of 
the  firm.  If  the  defendant  can  hold  these  leases,  he  could  have  held 
them  if  he  had  secretly  obtained  them  immediately  after  the  partner- 
ship commenced,  and  had  concealed  the  fact  from  the  plaintiff  dur- 
ing the  whole  term.  There  would  thus  have  been,  during  the  whole 
term,  in  making  permanent  improvements  and  in  furnishing  the  hotel, 
a  conflict  between  his  duty  to  the  firm  and  his  self-interest.  Large 
investments  and  extensive  furnishings  would  add  to  the  value  of  his 
lease,  and  defendant  would  be  under  constant  temptation  to  make 
them.  While  he  might  not  yield  to  the  temptation,  and  while  proof 
might  show  that  he  had  not  yielded,  the  law  will  not  allow  a  trustee 
thus  situated  to  be  thus  tempted,  and  therefore  disables  him  from 
making  a  contract  for  his  own  benefit.  Terwilliger  v.  Brown,  44  N.  Y. 
237,  and  cases  cited.  It  matters  not  that  the  court  at  Special  Term 
found  upon  the  evidence  that  the  improvements  were  judicious  and 
prudent  for  the  purposes  of  the  old  term.  The  plaintiff  was  entitled 
to  the  unbiased  judgment  of  the  defendant  as  to  such  improvements, 
uninfluenced  by  his  private  and  separate  interest.  But,  further,  the 
parties  owned  together  a  large  amount  of  hotel  property  in  the  form 
of  furniture  and  supplies,  considerably  exceeding,  as  I  infer,  $100,000 
in  value.  Assuming  that  the  partnership  was  not  to  be  continued  after 
the  1st  day  of  May,  1871,  this  property  was  to  be  sold,  or  in  some 
way  disposed  of  for  the  benefit  of  the  firm,  and  each  partner  owed  a 
duty  to  the  firm  to  dispose  of  it  to  the  best  advantage.  Neither  could, 
without  the  violation  of  his  duty  to  the  firm,  place  the  property  in  such 
a  situation  that  it  would  be  sacrificed,  or  that  he  could  purchase  it  for 
his  separate  benefit,  at  a  great  profit.  Much  of  this  property,  such 
as  mirrors,  carpets,  etc.,  was  fitted  for  use  in  this  hotel,  and  it  is  quite 


DUTY    TO    OHSERVE    GOOD    FAITH  243 

manifest  that  all  of  it  would  sell  better  with  a  lease  of  the  hotel  than 
it  would  to  be  removed  therefrom.  It  is  clear  that  one  or  both  of  these 
parties  could  obtain  advantageous  leases  of  the  hotel  for  a  term  of 
years,  and  hence,  if  the  parties  had  determined  to  dissolve  their  part- 
nership, it  would  have  been  a  measure  of  ordinary  prudence  to  have 
obtained  the  leases  and  transferred  property  with  the  leases  as  the 
only  mode  of  realizing  its  value.  This  was  defeated  by  the  act  of  the 
defendant,  if  he  is  allowed  to  hold  these  leases,  and  thus  place  him- 
self in  a  position  where  the  property  must  be  largely  sacrificed  or 
purchased  by  himself  at  a  great  advantage.  This  the  law  will  not 
tolerate.  The  language  of  Lord  Eldon,  in  Featherstonhaugh  v.  Fen- 
wick,  17  Ves.  311,  a  case  in  many  respects  resembling  this,  is  quite  in 
point.  He  says:  "If  they  [the  defendants]  can  hold  this  lease,  and 
the  partnership  stock  is  not  brought  to  sale,  they  are  by  no  means  on 
equal  terms.  The  stock  cannot  be  of  equal  value  to  the  plaintiff,  who 
was  to  carry  it  away  and  seek  some  place  in  which  to  put  it,  as  to  the 
defendants,  who  were  to  continue  it  in  the  place  where  the  trade  was 
already  established;  and  if  the  stock  was  sold  the  same  construction 
would  give  them  an  advantage  over  the  bidders.  In  effect  they  would 
have  secured  the  good  will  of  the  trade  to  themselves  in  exclusion  of 
their  partner."  For  these  reasons,  independently  of  the  consideration 
that  the  leases  themselves  had  a  value  to  which  the  firm  was  entitled, 
upon  other  grounds  and  upon  authorities,  to  be  hereafter  cited,  the 
plaintiff,  who  commenced  his  suit  about  one  year  before  the  term  of 
the  partnership  expired,  was,  upon  undisputed  principles  and  au- 
thorities applicable  to  all  trustees  and  persons  holding  a  fiduciary  re- 
lation to  others,  entitled  to  the  relief  he  prayed  for.     *     *    * 

I  am  therefore  of  opinion  that  the  judgment  should  be  reversed, 
and  new  trial  granted;    costs  to  abide  the  event. 


.  JENNINGS  et  al.  v.  RICKARD. 
(Supreme  Court  of  Colorado,  1SS7.    10  Colo.  395,  15  Pac.  G77.) 

Elbert,  J.^^  Charles  Rickard,  the  plaintiff  below,  on  the  ISth  of 
December,  18S2,  filed  his  bill  of  complaint  against  the  defendants,  John 
and  Daniel  Jennings,  claiming  a  decree  against  them  for  $30,200,  on 
account  of  certain  partnership  transactions.  He  alleges  that  in  the 
fall  of  1874  he  and  the  defendants  entered  into  a  mining  copartner- 
ship for  the  purpose  of  collecting  mineral  specimens,  and  also  for  the 
purpose  of  discovering,  locating,  and  developing  lodes  and  mining 
properties;  that  by  the  terms  of  such  copartnership  agreement  Rickard 
was  to  furnish  certain  moneys,  horses,  wagons,  etc.;  that  the  defend- 
ants were  to  do  the  active  work  in  the  field  in  prospecting  and  locating 
mining  claims,  and  that  each  were  to  have  a  one-third  interest  in  all 
mining  claims  discovered  and  located   by   the   defendants;    that   this 

11  Part  of  the  opinion  is  omitted. 


244  RIGHTS    AND   DUTIES   OF    PARTNERS   INTER   SB 

copartnership  continued  until  April,  1S78 ;  that  during  this  time  tne 
defendants  discovered  and  located  the  Mammoth,  the  Empire,  and  the 
Trail  lodes,  and  a  certain  claim  to  coal  lands,  and  reported  the  same 
to  plaintiff  as  properties  belonging-  to  the  copartnership;  that  they 
reported  the  aforesaid  lodes  as  being  all  that  had  been  discovered, 
located,  and  claimed  by  them  during  the  continuance  of  the  copartner- 
ship agreement.  He  alleges  that  on  the  19th  of  March,  1878,  he  con- 
veyed to  said  defendants,  for  the  sum  of  $400,  all  his  interest  in  and 
to  the  foregoing  copartnership  properties.  Concerning  this  convey- 
ance of  the  19th  of  March,  1878,  he  alleges  a  distinct  and  separate 
fraud  upon  the  part  of  defendants  Jennings,  by  reason  of  which  he  is 
entitled  to  a  decree  against  them  for  $200.  This  fraud  concerns  prop- 
erties admittedly  belonging  to  the  copartnership,  and  will  be  consid- 
ered first. 

Under  the  terms  of  the  copartnership,  the  lodes  were  located  for 
convenience  in  the  names  of  the  defendants,  and  they  were  authorized 
to  negotiate  and  sell  them,  accounting  to  plaintiff  for  one-third  of  the 
proceeds.  The  evidence  clearly  shows  that  on  or  about  the  19th  of 
March,  1878,  the  defendants  approached  the  plaintiff  concerning  a 
purchase  of  his  third  interest  in  the  foregoing  copartnership  properties, 
and  that  the  negotiation  resulted  in  the  sale  by  plaintiff  to  defendants 
of  his  third  interest  in  the  same  for  the  sum  of  $400,  which  he  then 
and  there  conveyed  by  deed  of  that  date  to  defendants.  It  also  quite 
clearly  appears  that  at  the  time  of  this  sale  the  defendants  were  ne- 
gotiating a  sale  of  the  copartnership  coal  claim  to  one  Smith,  for  the 
sum  of  $1,800.  Although  this  sale  to  Smith  was  not  consummated 
until  some  time  thereafter,  the  deed  to  Smith,  which  was  placed  in 
escrow,  bears  date  March  19,  1878,  the  date  of  the  conveyance  by  the 
plaintiff  to  defendants  of  his  one-third  interest  in  the  copartnership 
properties.  The  one-third  interest  of  the  plaintiff  in  the  proceeds  of 
the  sale  of  this  coal  mine  would  have  amounted  to  $600,  $200  more 
than  the  defendants  paid  him  for  his  entire  interest  in  the  four  claims. 

The  partnership  relation  is  a  trust  relation,  and  the  members  of  a 
copartnership  are  held  to  a  strict  rule  of  good  faith  and  fair  and  open 
dealing.  He  who  assumes  the  relation  invites  the  confidence  of  his 
copartners,  and  pledges  fidelity  to  the  interests  of  the  copartnership. 
The  requirements  of  the  copartnership  relation  which  the  defendants 
sustained  to  the  plaintiff  demanded  that,  at  the  time  of  the  negotiation 
for  a  sale  of  his  third  interest  in  the  copartnership  properties,  they 
should  have  made  known  to  him  the  negotiation  which  was  then 
pending  with  Smith  for  the  sale  of  the  coal  claim  for  the  sum  of 
$1,800.  Their  concealment  of  this  negotiation  from  the  plaintiff  was 
the  concealment  of  an  important  fact,  affecting  the  value  of  plaintiff's 
copartnership  interest  for  which  they  were  negotiating.  It  enabled 
them  to  deal  with  him  on  unfair  and  unequal  terms.  It  was  a  fraud, 
and  equity  and  good  conscience  required  that  defendants  should  ac- 
count to  plaintiff  for  one-third  of  the  proceeds  of  that  sale. 


DUTY  TO  OBSERVE  GOOD  FAITH  24". 

The  sale  by  plaintifT  to  defendants  of  his  one-third  interest  in  the 
copartnership  properties,  to  wit,  the  Mammoth,  the  Empire,  and  the 
Trail  lodes,  and  the  coal  claim,  was  a  sale  in  gross  for  $100.  The 
consideration  paid  for  each  property  respectively,  does  not  appear. 
As  the  plaintiff  introduced  no  evidence  upon  this  point,  and  only 
prayed  in  his  bill  of  complaint  that  the  defendants  be  decreed  to  ac- 
count for  the  sum  of  $300,  the  difference  between  the  entire  considera- 
tion paid  him  for  the  whole  property  and  his  third  interest  in  the  pro- 
ceeds of  the  sale  of  the  coal  claim,  the  court  was  justiticd  in  limiting 
its  decree  in  this  behalf  to  that  sum. 

Secondly.  The  plaintiff  alleges  another  and  distinct  fraud  respecting 
certain  mining  properties,  which  he  claimed  belonged  to  the  copartner- 
ship, a  claim  which  the  defendants  contest.  Plaintiff  alleges  that, 
during  the  continuance  of  said  copartnership  agreement,  the  defend- 
ants discovered  and  located  certain  other  mining  claims,  viz.,  the  Cliff, 
the  North  Star,  the  Hiawassee,  the  Galena,  the  East  Wing,  the  Buck- 
eye, and  the  Sylvanite;  that  under  the  terms  of  their  copartnership 
agreement  he  was  entitled  to  a  one-third  interest  in  the  same,  but  that 
the  defendants  fraudulently  concealed  from  him  the  discovery  and  lo- 
cation of  said  claims,  and  that  he  never  knew  of  the  existence  of  said 
claims,  or  of  his  rights  therein,  until  on  or  about  the  27th  day  of 
September,  1879,  when  the  defendants  sold  and  conveyed  said  claims 
to  one  Ballentine  for  the  sum  of  $00,000.  By  reason  of  this  fraud 
upon  the  part  of  defendants,  the  plaintiff  claims  a  decree  for  $20,000, 
one-third  of  the  proceeds  of  said  sale  to  Ballentine. 

The  defendants,  in  their  answer,  deny  the  copartnership,  except  as 
thereinafter  stated,  and  "thereinafter"  they  say  "that  they,  the  defend- 
ants, further  answering,  admit  that  they  entered  into  an  agreement  with 
plaintiff"  to  gather  specimens  and  prospect  for  lodes,  substantially  as 
set  out  in  the  complaint,  and  that  such  agreement  continued  until  the 
early  part  of  the  year  1878."  They  set  forth  the  sale  and  deed  of  the 
19th  of  March,  1878,  by  plaintiff  to  defendants,  and  say  "that,  upon 
the  completion  of  such  sale  by  plaintiff  to  defendants,  it  was  then 
and  there  agreed  by  and  between  them  that  all  former  associations, 
agreement,  copartnership,  and  business  relations  theretofore  existing 
between  plaintiff  and  these  defendants  should  cease,  and  the  same 
were  then  and  there  fully  dissolved  and  terminated."  In  view  of  the 
testimony,  as  will  be  seen,  this  is  an  important  admission.  They  deny 
any  fraudulent  concealment  of  lodes  discovered  and  located  as  alleged 
in  the  complaint,  but  claim  that  the  IVfammoth,  the  Empire,  the  Trail 
lodes,  and  the  claim  to  coal  lands,  reported  by  them  to  plaintiff  as 
copartnership  properties,  were  all  the  lodes  discovered  and  located  by 
them  during  the  continuance  of  the  copartnership,  from  the  fall  of 
1874  to  the  spring  of  1878. 

Upon  the  admissions  of  the  defendants  in  their  answer  and  testi- 
mony, the  Cliff,  the  Hiawassee,  the  Galena,  and  the  North  Star  must 
be  treated,  without  hesitancy,  as  oroperties  belonging  to  the  copartner- 


246  RIGHTS    AND   DUTIES   OP    PARTNERS   INTER   SB 

ship.  Tlie  defendants,  in  their  answer,  admit  that  the  copartnership 
formed  in  1S74  continued  until  the  spring  of  1878.  The  copartner- 
ship must  be  treated  as  extending  to  all  mining  properties  discovered 
and  located  by  the  defendants  during  that  period,  in  the  absence  of 
any  limitation.  John  Jennings  admits  in  his  testimony  that  the  four 
lodes  named  were  discovered  and  located  in  1876  and  1877.  The 
defendant,  Daniel  Jennings,  while  he  does  not  testify  upon  this  point, 
does  not  in  any  way  controvert  or  disclaim  it.  It  is  true  that  they 
both  claim  in  their  testimony  that  they  understood  that  the  copartner- 
ship was  dissolved  in  the  spring  of  1876,  when  the  copartnership 
"specimen  store"  was  sold;  but  this  testimony  does  not  support  the 
allegations  of  the  answer,  the  admissions  of  which,  upon  this  point, 
must  be  held  to  control. 

It  appears  from  the  testimony  that  these  four  mines  belonged  to  the 
group  of  ten  which  were  sold  to  Ballentine  for  the  sum  of  $12,000. 
There  is  no  evidence  fixing  the  separate  value  of  the  mines  which 
constitute  this  group.  In  the  absence  of  any  evidence  upon  this  point, 
the  respective  mines  constituting  the  group  must  be  treated  of  equal 
value.  In  so  far,  therefore,  as  the  decree  of  the  court  below  was 
based  upon  the  right  of  the  plaintiff  to  recover  one-third  of  the  pro- 
ceeds arising  from  the  sale  of  the  Cliff,  the  Hiawassee,  the  North 
Star,  and  the  Galena  is  concerned,  we  think  it  is  justified  by  the  plead- 
ings and  the  evidence. 

It  appears  that  three  other  mines  which  plaintiff  claims  belong  to 
the  copartnership,  viz.,  the  Sylvanite,  the  Buckeye,  and  the  East  Wing, 
were  at  the  same  time,  namely,  on  the  27th  of  September,  1879,  con- 
veyed to  Ballentine  by  a  separate  deed,  and  that  the  true  consideration 
therefor  was  $48,000.  This  sum,  together  with  the  $12,000  for  which 
the  other  group  sold,  constitutes  the  $00,000  for  the  one-third  of 
which  plaintiff  claims  a  decree. 

It  remains,  therefore,  to  determine  whether,  upon  the  evidence, 
these  three  mines  belonged  to  the  copartnership.  The  two  Jennings  and 
other  witnesses  testify  positively  to  their  discovery  and  location  in 
1879,  after  the  copartnership  had  been  admittedly  dissolved.  It  ap- 
pears that  the  Sylvanite  was  by  far  the  most  valuable  of  the  three; 
that  the  other  two  were  not  regarded  as  of  much  value.  There  was  an 
effort  upon  the  part  of  the  plaintiff  to  show  that,  while  the  Sylvanite 
was  not  located  until  1879,  it  was  really  discovered  by  the  Jennings 
during  the  existence  of  the  copartnership,  and  its  discovery  fraudu- 
lently concealed  from  the  plaintiff.  Daniel  Jennings  admits  in  his 
testimony  that  some  years  prior  to  1879,  while  prospecting,  he  dis- 
covered some  "float"  upon  the  mountain  side  some  four  or  five  hun- 
dred feet  from  where  the  Sylvanite  was  afterwards  discovered,  and 
that  he  stuck  a  stake  there  to  indicate  the  locality,  with  a  view  of  re- 
turning at  some  future  day  to  prospect  for  the  vein  from  which  it 
came,  but  that  he  never  did  return  to  renew  his  search  until  1879. 
Other   witnesses   testify   to   substantially  the   same   admission   on   his 


EIGHT  TO   COMPENSATION   FOE   SEEVICES  247 

part.  At  the  worst,  this  was  but  a  neglect  upon  his  part  to  pursue 
a  search  that  might  have  terminated  beneficially  to  the  copartnership. 
His  failure  to  do  so,  however,  docs  not  appear  to  have  been  fraudu- 
lent. It  is  not  shown  that  at  the  time  he  stuck  the  stake  .where  he 
found  the  "float,"  that  he  discovered  the  vein  from  which  it  came, 
or  that  he  had  any  knowledge  respecting  it  that  would  render  his 
failure  to  make  further  search  for  the  mine  fraudulent.  Such  and 
other  indications  of  the  existence  of  mineral  veins  are  frequent  in  the 
path  of  the  prospector.  All  that  can  be  required  of  him  is  that  he 
pursue  his  search  with  diligence  and  good  faith.  His  failure  to  follo-v 
up  a  particular  "float,"  or  other  indication  of  a  lode,  is  not  a  fraud  as 
of  course.  It  will  not  do  to  say,  under  the  circumstances  of  this  case, 
that  Jennings,  after  the  dissolution  of  the  copartnership,  could  not 
return  to  and  prospect  in  Elk  Mountain  district  for  other  lodes,  ex- 
cept at  the  peril  of  having  to  yield  to  plaintiff  a  one-third  interest  in 
their  discoveries,  upon  the  proposition  that  by  proper  diligence  they 
might  have  discovered  such  lodes  during  the  existence  of  the  copart- 
nership. The  evidence  does  not  show  the  fraudulent  concealment  of  a 
discovery,  as  in  the  case  of  the  other  group  of  mines. 

In  so  far,  therefore,  as  the  decree  of  the  court  below  was  based 
upon  the  rights  of  the  plaintiff  to  recover  one-third  of  the  proceeds 
arising  from  the  sale  of  these  three  mines,  we  do  not  think  it  justified 
by  the  evidence.    *    *    * 

The  decree  of  the  court  below  is  reversed,  and  the  cause  remanded. 


VII.  Right  to  Compensation  for  Services  ^'' 


LINDSEY  V.  STRANAHAN. 
(Supreme  Court  of  Pennsylvania,  1889.    129  Pa.  635,  18  Atl.  524.) 

Per  Curiam.  There  is  but  a  single  question  in  this  case :  Is  J.  R. 
Lindsey,  the  plaintiff,  entitled  to  compensation  for  his  services  as  a 
partner?  It  is  conceded  that  there  was  no  express  contract  that  he 
should  be  paid  for  such  services,  and  there  is  no  principle  better  set- 
tled than  that  the  law  will  not  imply  a  contract  in  such  cases.  The 
reason  is  that  the  partner  is  but  attending  to  his  own  affairs.  This 
rule  is  inexorable;  as  much  so  as  that  between  parent  and  child. 
Were  it  otherwise,  we  might  have  a  contract  between  the  partners 
upon  the  settlement  of  every  partnership  account  as  to  the  value  of 
their  respective  services.  It  is  true  this  principle  may  work  hardship 
in  particular  cases — almost  every  general  rule  does ;  but  that  is  a 
weak  argument  against  the  soundness  of  the  rule.  When  the  copart- 
nership agreement  contemplates   that   one  partner   shall   manage   the 

12  For  a  discussion  of  principles,  see  Gilniore  on  Partnership,  §  133. 


248  RIGHTS    AND   DUTIES  OF    PARTNERS   INTER  SE 

business,  or  do  more  than  his  share  of  the  work,  it  is  easy  to  provide 
for  his  compensation  in  the  agreement  itself;  and  if  no  such  stipula- 
tion is  then  made,  as  before  said,  the  law  will  not  imply  one.  Even 
where  a  liquidating  or  surviving  partner  settles  up  the  business,  it  has 
been  repeatedly  held  that  he  is  not  entitled  to  compensation  for  doing 
so,  although,  in  such  case,  he  performs  all  the  services.  Beatty  v. 
Wrav,  19  "Pa.  516,  57  Am.  Dec.  677;  Brown  v.  McFarland,  41  Pa. 
lt?9.'S0  Am.  Dec.  598;  Gyger's  Appeal,  62  Pa.  73,  1  Am.  Rep.  382; 
Brown's  Appeal,  89  Pa.  139.    Judgment  affirmed. 


VIII.  Right  to  Indemnity  and  Contribution*' 


DOWNS   V.   JACKSON. 

(Supreme  Court  of  Illinois,  1864.    33  111.  465,  85  Am.  Dec.  289.) 

Beckwith,  J.**  This  was  a  bill  in  chancery  for  contribution  and 
set-off.  The  parties  were  partners,  sharing  profits  and  losses  equally 
in  the  manufacture  and  sale  of  furniture  for  one  year,  ending  No- 
vember 22,  1860,  when  the  copartnership  was  dissolved,  and  the  plain- 
tiff in  error  bought  the  interest  of  the  defendant  in  error  in  certain 
furniture  belonging  to  the  firm,  and  gave  his  notes  therefor,  a  part 
of  which  were  paid,  but  upon  the  remainder  there  was  due  at  the 
commencement  of  the  suit  about  $200.  At  the  time  of  said  dissolu- 
tion the  firm  was  indebted  to  Roundy,  Chabin  &  Co.  in  the  sum  of 
about  $400,  upon  which  indebtedness  a  judgment  was  rendered  in 
April,  1861.  An  execution  was  afterwards  isssued  thereon  and  sat- 
isfied by  a  sale  en  masse  of  certain  lands  belonging  to  the  parties  sev- 
erally. On  the  1st  day  of  January,  1862,  the  plaintiff  in  error  redeem- 
ed from  the  sale  by  paying  to  the  purchaser  the  amount  of  his  bid, 
with  interest,  for  which  he  gave  a  receipt  upon  the  back  of  the  cer- 
tificate of  sale,  which  he  delivered  to  the  plaintiff  in  error.  In  the 
spring  of  1863  the  parties  had  a  settlement  of  all  their  copartnership 
matters,  except  the  claim  of  the  plaintiff  in  error  to  be  repaid  one- 
half  of  the  amount  paid  by  him  to  redeem  said  lands  and  the  balance 
due  upon  said  notes.  The  plaintiff  in  error  by  the  present  suit  seeks 
contribution  for  a  moiety  of  the  sum  paid  by  him  and  a  set-off  of  the 
same  against  the  amount  due  upon  his  notes.  The  liability  of  the  par- 
ties to  Roundy,  Chabin  &  Co.  was  a  joint  one,  and  it  was  the  duty  of 
each  party  to  exonerate  the  other  from  a  moiety  of  it.  No  act  falling 
short  of  a  complete  exoneration  of  the  one  party  and  his  property  from 

13  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  134. 
1*  I'urt  of  the  opinion  is  omitted. 


RIGHT   TO    INDEMNITY    AND    CONTRIBUTION  249 

SO  much  of  the  habihty  as  he  was  entitled  to  be  exonerated  from  will 
operate  as  a  discharge  of  the  other  party  from  his  obligation  in  that  re- 
gard. The  sale  en  masse  of  the  lands  of  the  defendant  in  error  with 
those  of  the  plaintiff  in  error  did  not  discharge  any  part  of  the  prop- 
erty sold,  nor  the  parties  from  their  respective  duties.  Neither  party 
could  obtain  a  discharge  of  his  property  without  paying  the  whole 
amount  of  the  purchase  money  and  interest,  and  each  of  them  had 
the  same  right  after  the  sale,  within  the  time  allowed  by  law,  to  re- 
deem the  lands  for  that  purpose  as  he  had  before  that  time  to  pay  the 
debt  to  discharge  himself  from  personal  liability.  The  sale  may  have 
been  irregular,  and  for  that  reason  might  have  been  set  aside;  but 
setting  aside  the  sale  would  have  revived  the  debt,  and  we  are  unable 
to  discover  any  satisfactory  reason  for  requiring  the  plaintiff  in  error 
to  make  the  charge  upon  his  property  a  personal  debt  against  the  de- 
fendant in  error  and  himself  before  satisfying  it.  The  law  does  not 
require  acts  to  be  done  where  there  is  no  conceivable  object  to  be 
gained  by  doing  them.  In  the  present  case  the  right  to  contribution  is 
founded  upon  the  duty  of  exoneration.  The  plaintiff  in  error  has 
been  compelled  to  pay  money  to  exonerate  his  property  from  a  lia- 
bility, a  moiety  of  which  he  ought  to  have  been  exonerated  from  by 
the  defendant  in  error.  The  lands  were  discharged  from  the  sale  by 
the  purchasers  accepting  the  redemption  money.  The  statute,  pro- 
viding a  mode  of  evidencing  the  redemption,  may  be  enforced  by  an 
appropriate  remedy ;  but  a  compliance  with  its  provisions  is  not  a  con- 
dition precedent  to  the  assertion  of  the  right  of  plaintiff  in  error  to 
contribution.  The  court  below  should  have  rendered  a  decree  in 
favor  of  the  plaintiff  in  error  for  the  one-half  of  the  sums  paid  by 
him,  with  interest  thereon  from  the  time  of  its  payment.  The  plaintiff 
in  error  was  not  entitled  to  the  set-off  claimed  by  the  bill.  There 
was  no  proof  of  the  insolvency  of  the  defendant  in  error,  nor  of  any 
special  equity  requiring  the  set-off  to  be  made.     *    *     * 

The  decree  of  the  court  below  will  be  reversed,  and  the  cause  re- 
manded. 

Decree  reversed. 


WARRING  V.  ARTHUR  et  al. 
(Court  of  Appeals  of  Kentucky,  1895.    98  Ky.  34,  32  S.  W.  221.) 

Eastin,  J.  This  action  was  brought  by  appellant  in  the  Bell  cir- 
cuit court,  alleging  the  existence  of  a  partnership  between  himself  and 
appellees,  and  seeking  to  enforce  an  alleged  right  of  contribution  from 
appellees  of  certain  sums  which  he  claimed  to  have  paid  in  excess  of 
his  proportion  of  the  partnership  indebtedness.  It  is  charged  in  the 
petition  that  this  partnership  relation  arose  by  operation  of  law  out 
of  the  fact  that  appellant  and  some  of  the  appellees  had,  in  the  year 
1890,  signed  articles  of  incorporation,  and  undertaken  to  organize  a 
corporation  in  the  town  of  jMiddlesborough,  under  chapter  5G  of  the 


250  RIGHTS    AND   DUTIES  OF    PARTNERS   INTER  SB 

General  Statutes  of  Kentucky,  and  that  all  of  the  appellees  had  sub- 
scribed for  and  become  the  owners  of  stock  in  this  proposed  corpora- 
tion, which  had  never,  in  fact  or  in  law,  become  a  corporation,  by  rea- 
son of  the  failure  of  the  projectors  thereof  to  comply  substantially 
with  the  requirements  of  the  statute  regulating  the  formation  of  cor- 
porations in  Kentucky.     It  is  alleged,  however,  that  this  abortive  cor- 
poration commenced  business  and  incurred  liabilities  which  it  was  un- 
able to  pay,  and  that,  the  defects  in  its  organization  being  discovered, 
and  the  fact  that  it  had  no  legal  corporate  existence  becoming  known 
to  some  of  its  creditors,  suits  were  brought  against  appellant  to  charge 
him  individually,  as  one  of  the  incorporators  and  stockholders  thereof, 
and  that  he  had  thus  been  compelled  to  pay  on  its  account  the  sum  of 
$1,327.68,    It  is  further  alleged  that  by  reason  of  the  failure  to  become 
legally  incorporated  the  relation  between  appellant  and  his  associates 
became  that  of  partners,  and  that  they  all  became  equally  liable  to 
creditors  for  said  indebtedness,  and  that  he  was  entitled  to  contribu- 
tion from  the  others  for  their  respective  proportions  of  the  amount 
paid  by  him  individually.     It  is  stated,  however,  that  of  his  several 
associates  only  two,  to  wit,  the  appellees  John  M.  Brooks  and  R.  H. 
Fox,  were,  at  the  time  of  the  filing  of  the  petition,  either  solvent,  or 
within  the  jurisdiction  of  the  court,  and  appellant  therefore  asked  that 
they  be  required  to  contribute  equally  with  him  the  amount  he  had  so 
paid  out,  and  asked  judgment  against  each  of  them  for  an  amount 
equal  to  one-third  thereof,  or  $442.56.     To  this  petition  a  general  de- 
murrer was  sustained  by  the  court,  and,  leave  being  given  to  amend, 
appellant,  at  a  subsequent  term  of  the  court,  filed  an  amended  peti- 
tion, in  which  he  alleged  for  the  first  time  that  the  company  or  part- 
nership referred  to  in  his  original  petition  was  insolvent  at  the  time 
of  the  filing  thereof ;    that  it  never  had  any  invested  capital ;    that  its 
business  had  been  done  on  credit;   that  it  had  long  since  ceased  to  do 
business;    that  all  the  property  it  ever  had  had  been  sold  by  order  of 
court;    that  from  the  time  of  the  attempted  organization  it  had  been 
insolvent,  and  had  long  since  been  dissolved.     To  the  petition  as  thus 
amended  appellees  Fox  and  Brooks  again  demurred,  but,  their  de- 
murrers being  overruled,  they  excepted,  and  were  given  time  to  answer. 
Separate  answers  were  afterwards  filed  by  these  appellees,  to  which  ap- 
pellant filed  replies,   and  also  general  and   special   demurrers,   which 
were  not  then  passed  upon  by  the  court,  and  separate  rejoinders  were 
then  filed  by  Fox  and  Brooks,  thus  making  up  the  issues  on  the  plead- 
ings.    Appellant  testified  in  his  own  behalf.    Brooks  gave  his  deposi- 
tion;  and  a  written  statement  by  Fox,  which  was  agreed  to  be  read 
as  his  deposition,  was  filed,  and  these,  with  the  exhibits  attached  to 
them,  constituted  the  evidence  heard  upon  the  trial.     Upon  the  hear- 
ing the  court  below  overruled  the  demurrers  filed  by  appellant  to  the 
answers  of  Brooks  and  Fox,  respectively,  but  on  the  merits  adjudged 
that  appellant  take  nothing  by  his  petition,  and  dismissed  the   same 
with  costs,  to  all  of  which  appellant  excepted,  and  prayed  an  appeal. 
The  record  before  us  presents  some  questions  of  more  than  ordinary 


RIGHT   TO    INDEMNITY    AND   CONTRIBUTION  251 

interest,  especially  that  arising  on  the  merits  of  the  case  as  prepared, 
and  pertaining  to  the  mutual  obligations  to  each  other  of  parties  stand- 
ing in  the  relation  of  the  parties  to  this  action ;  but,  interesting  as  a 
consideration  of  that  question  might  be,  it  is  unnecessary,  in  our  view 
of  the  case,  and  the  decision  of  the  court  will  be  based  entirely  upon 
the  sufficiency  of  appellant's  petition  to  sustain  the  action  against  ap- 
pellees. It  is  to  be  observed  that  the  liability  sought  to  be  fixed  by 
appellant  on  appellees  is  that  of  partners.  The  very  foundation  of 
the  cause  of  action  rests  upon  the  assumption  that  the  failure  of  these 
parties  to  pursue  substantially  the  course  pointed  out  in  and  required 
by  the  statute  for  the  organization  of  a  corporation  made  them  part- 
ners in  this  business,  and,  a  partnership  being  thus  established  by  op- 
eration of  law,  this  action  for  contribution  as  between  partners  was 
brought  to  charge  each  with  his  proportion  of  what  one  member  there- 
of had  been  compelled  to  pay  on  account  of  partnership  liabilities.  Yet 
it  is  nowhere  alleged  in  the  petition  as  amended,  nor  is  it  anywhere 
claimed  in  the  case,  that  there  had  ever  been  any  settlement  of  the 
partnership  accounts,  or  any  accounting  between  the  parties,  whereby 
a  balance  had  been  struck,  or  whereby  the  appellees  were  found  to  be 
indebted  to  the  firm  in  any  sum  on  final  settlement.  That  this  is,  as 
a  general  rule,  necessary  in  order  to  enable  one  partner  to  maintain 
an  action  of  this  kind  against  his  copartners,  is  too  well  settled  to 
require  discussion.  Where  the  transaction  out  of  which  the  liability 
arises  is  independent  of  or  outside  of  the  partnership  business,  or 
where  the  partnership  covers  a  single  venture,  or  but  one  transaction, 
so  that  no  accounting  is  necessary,  the  rule  is  perhaps  different ;  but 
in  a  business  such  as  the  one  under  consideration  here,  covering  a 
variety  of  transactions,  we  know  of  no  exception  to  the  rule  as  above 
stated.  This  rule  is  recognized  by  this  court  in  the  cases  of  Lawrence 
V.  Clark,  9  Dana,  259,  35  Am.  Dec.  133,  Shearer  v.  Francis  (Ky.) 
5  S.  W.  559,  and  Stone  v.  Mattingly  (Ky.)  19  S.  W.  402,  and  may 
be  said  to  be  fundamental  as  to  the  right  of  one  partner  to  sue  his  co- 
partner. It  is  true  that  this  action  was  brought  in  equity,  and  that 
the  petition  contains  a  prayer  for  all  general  relief;  but  it  does  not 
ask  for  a  settlement  of  the  partnership  accounts,  or  for  a  winding  up 
of  its  affairs.  It  does  state  that  the  partnership  is  insolvent,  but  it 
nowhere  says  anything  as  to  the  nature  or  amount  of  its  indebtedness ; 
and  while  it  alleges  that  appellant  has  made  these  payments  for  it,  it 
takes  no  account  of  the  fact  that  other  members  of  the  firm  may  also 
have  paid  out  money  for  it,  as  Brooks  in  his  testimony  swears  that  he 
has  done.  And  this  shows  the  importance  of  the  rule  referred  to,  for 
how  could  this  one  partner  have  known  the  state  of  the  account  be- 
tween this  firm  and  each  of  the  other  partners  when  there  had  been 
no  settlement  of  the  partnership  accounts,  and  how  unreasonable  it 
would  be  to  allow  him  to  maintain  an  action  against  each  of  the  others 
for  their  full  proportion  of  what  he  might  have  paid  without  refer- 
ence to  the  question  as  to  what  they  may  have  paid  ?  In  other  words, 
how  can  there  be  any  fair  or  just  contributiun,  or  any  claim  to  con- 


252  RIGHTS    AND   DUTIES  OF    PARTNERS   INTiSR  SH 

triDution,  as  Dctween  partners,  until  atter  a  tinal  settlement  and  ascer- 
tainment of  the  exact  state  of  the  account  of  each  partner,  and  a  full 
settlement  of  the  partnership  afifairs?  Admitting  all  that  is  alleged 
in  this  petition  to  be  true,  it  might  well  be  that  appellant  was  entitled 
to  recover  nothing  from  his  partners  by  way  of  contribution  on  ac- 
count of  what  he  had  paid,  for,  as  there  is  no  pretense  that  the  part- 
nership accounts  have  ever  been  settled,  it  might  appear  on  such  set- 
tlement that  appellant  was  still  indebteded  to  the  partnership  in  a 
large  sum,  and  that  his  partners  had  actually  paid  for  it  much  more  than 
he  had  done.  Indeed,  this  very  claim  is  here  made  by  his  partners. 
It  is  charged  by  them  that,  though  he  subscribed  for  stock  to  the 
amount  of  $2,500,  yet  he  has  paid  for  no  part  of  it;  and  while  he 
claims  that  it  was  agreed  that  he  should  not  pay  for  it,  still  Brooks 
and  Fox  deny  that  there  was  any  such  agreement.  We  only  refer  to 
this,  however,  as  illustrating  the  imperative  necessity  for  and  the  emi- 
nent propriety  of  the  rule  which  forbids  that  such  an  action  be  main- 
tained in  the  absence  of  a  full  settlement  of  the  partnership  affairs 
which  will  show  the  exact  state  of  the  account  between  it  and  every 
other  person,  and  especially  the  other  members  of  the  firm,  so  that 
the  claims  and  demands  of  the  partners,  as  between  themselves,  may 
be  known. 

Another  point  to  which  attention  may  be  called  is  the  fact  that  this 
petition  fails  to  state  that  this  alleged  partnership  was  an  equal  part- 
nership, or  that  the  appellees,  Fox  and  Brooks,  who  are  each  asked 
to  contribute  equally  with  appellant,  are  equally  interested  with  him 
in  the  partnership.  It  appears  from  the  record  that  appellant  sub- 
scribed for  $2,500  of  the  stock,  while  each  of  the  appellees  named  sub- 
scribed for  $1,000  of  the  same.  The  fact  that  they  were  stockholders 
is  the  fact  relied  on  for  holding  them  liable  as  partners.  Mr,  Lindley, 
in  his  work  on  Partnership,  lays  it  down  as  a  general  rule  "that  part- 
ners must  contribute  ratably  to  their  shares  towards  the  losses  and 
debts  of  their  firm"  (2  Lindl.  Partn.  p.  386)  ;  and  this,  we  think,  is 
the  accepted  doctrine  on  the  subject.  Certainly  any  other  rule  would 
be  very  inequitable  in  this  case,  and  while  we  do  not  care  to  decide 
that  this  must  be  the  basis  of  recovery  in  every  such  case,  yet  we 
would  call  attention  to  the  absence  from  the  petition  in  this  case  of 
any  allegation  as  to  the  respective  interests  of  the  partners  among 
whom  this  loss  is  sought  to  be  apportioned.  In  conclusion,  it  is  clear 
from  the  views  above  expressed  that  no  error  was  committed  by  the 
court  below  to  the  prejudice  of  appellant,  and  the  judgment  dismissing 
his  petition  with  costs  is  therefore  affirmed. 


DISTRIBUTION   OF   ASSETS   AMONG   FAKTNEB8  253 


IX.  Distribution  of  Assets  Among  Partners 


GROTH  et  al.  v.  KERSTING,  et  al. 
(Supreme  Court  of  Colorado,  1896.    23  Colo.  213,  47  Pac.  393.) 

Hayt,  C.  J.  The  defendants  in  error,  Fritz  Kersting  and  Aiisi^ust 
Wilmsmeier,  commenced  suit  against  plaintiffs  in  error,  Louis  Groth 
and  Ferdinand  B.  Becker.  This  action  was  numbered  13,115  in  the 
district  court.  The  complaint  in  the  suit,  as  originally  instituted,  con- 
tained two  causes  of  action.  The  first,  which  was  directed  against  the 
defendant  Groth  alone,  is  an  action  by  two  partners  against  the  third 
member  of  the  firm  for  an  accounting.  The  second  cause  of  action 
was  against  both  of  the  defendants,  upon  an  account  stated.  At  the 
time  of  the  institution  of  this  suit,  an  attachment  was  issued  in  aid 
thereof,  and  sustained  upon  final  hearing.  To  the  original  complaint 
a  demurrer  was  interposed,  and  sustained.  Thereafter  the  complaint 
was  amended,  and  the  first  cause  dropped  therefrom.  This  first  cause 
of  action  was  subsequently  made  the  basis  of  an  independent  suit, 
designated  in  the  district  court  as  No.  13,900.  After  the  issues  were 
joined  in  the  two  causes,  they  were  consolidated,  and  referred  to  I. 
E.  Barnum,  as  referee,  to  take  testimony,  and  report  findings.  As  a 
result  of  the  proceedings  had  before  the  referee,  the  plaintiffs  in  both 
cases  were  successful.  Exceptions  to  the  report  were  in  due  time  filed, 
and  overruled  by  the  court.  In  accordance  wath  the  findings  of  the 
referee,  the  district  court  rendered  judgment  for  the  plaintiffs  for  the 
sum  of  $8,751.54,  against  both  defendants,  and  an  individual  judgment 
against  Groth  alone  for  the  sum  of  $1,936.70.  From  this  judgment 
a  writ  of  error  was  sued  out  from  the  Court  of  Appeals,  in  which  court 
the  judgment  of  the  district  court  was  in  all  things  affirmed.  See 
Groth  V.  Kersting,  4  Colo.  App.  395,  36  Pac.  156.  From  this  latter 
judgment  the  cause  is  brought  here  by  error. 

It  is  claimed  that  the  referee's  report,  which  formed  the  basis  of  the 
decree  in  the  district  court,  as  well  as  that  of  the  Court  of  Appeals, 
is  manifestly  erroneous,  in  that  it  fails  to  provide  for  the  repayment 
to  each  partner  of  his  contribution  to  the  business.  Undoubtedly, 
the  usual  order  of  distribution  of  the  assets  of  a  copartnership  upon 
dissolution  is  as  stated  by  counsel,  to  wit:  (1)  Payment  of  the  debts 
or  liabilities  due  third  persons;  (2)  repaying  to  each  partner  his  ad- 
vances; (3)  repaying  to  each  partner  his  capital;  (4)  division  of 
the  balance  as  profits.  While  this  is  the  usual  order,  it  may  be  altered 
by  agreement  of  the  parties,  and  in  this  case  we  think,  from  the  evidence 
and  the  conditions  under  which  the  copartnership  was  formed  and  the 

15  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  136. 


254  RIGHTS    AND   DUTIES  OF    PARTNERS   INTER  SE 

firm  business  transacted,  the  referee  correctly  determined  that  the 
amount  contributed  by  the  several  partners  was  to  be  considered  as 
assets  of  the  firm,  and  to  be  distributed  accordingly.  In  accordance 
with  the  terms  of  the  agreement,  Kersting  and  Wilmsmeier  were  to 
devote  their  time  and  attention  to  the  joint  enterprise,  and  contribute 
only  $3,650.50,  while  Groth  contributed  $8,000,  although  he  had  but 
a  one-third  interest  in  the  business.  This  disproportionate  amount 
was,  we  think,  put  in  by  Groth  against  the  lease  theretofore  secured 
by  Kersting  &  Co.,  and  as  an  offset  to  their  labor  and  services  in  the 
management  of  the  business,  with  the  further  benefit  to  Groth  result- 
ing from  an  agreement  to  furnish  brick  for  his  building  contracts  at 
a  lower  price  than  they  could  be  purchased  for  in  the  market.  So, 
we  conclude  that  it  was  not  error  for  the  referee  to  treat  these  several 
items  as  assets  of  the  copartnership,  to  be  divided  between  the  part- 
ners according  to  their  interest  in  the  copartnership,  without  regard 
to  the  ratio  of  the  original  contributions. 

Among  the  credits  allowed  Kersting  &  Co.  is  one  for  hauling  brick. 
It  is  claimed  that  in  this  there  is  error,  because  the  bricks  were  hauled 
by  teams  belonging  to  the  copartnership.    We  do  not  so  understand  the 
evidence.    On  the  contrary,  the  referee  gave  credit  only  for  the  money 
paid  to  others  for  hauling.    Mr.  Kersting  says :    "Brick  hauling,  $1,242.- 
40 ;  that  is,  teams  which  hauled  bricks,  and  we  paid  them  for  hauling." 
In  the  complaint  it  is  alleged  that  the  profits  of  the  brick  business 
were  $9,731.68,  for  which  the  firm  of  Kersting  &  Co.  is  accountable, 
while  the  net  profits  of  the  business,  as  found  by  the  referee,  were 
only  $7,828.60.    It  is  urged  that  this  is  in  violation  of  the  rule  binding 
parties  by  the  allegations  of  their  pleadings.     This  is  not  so,  for  the 
reason  that  this  allegation  of  the  complaint  is  denied  by  the  answer, 
and  evidence  was  taken  upon  the  issue  thus  made.    The  referee  found 
that  the  price  charged  for  brick  by  Kersting  &  Co.  was  too  high,  and 
reduced  the  amount,  thereby  reducing  the  firm  profits  correspondingly. 
There  was  no  error  in  this,  but  Kersting  &  Co,  were  improperly  allow- 
ed, as  part  of  the  expenses  of  the  business  paid  by  them,  the  sum  of 
$3,650.50,  this  being  the  value  of  the  lease,  horses,  wagons,  tools, 
brick,  etc.,  contributed  to  the  firm  by  Kersting  and  Wilmsmeier  at  the 
inception  of  the  enterprise.     The  contribution  to  the  firm,  under  the 
findings  of  the   referee,  became  joint  property  or  firm  assets ;    and 
neither  party  should  have  been  given  credit  for  either  of  the  amounts 
in  the  final  settlement,  except  as  the  same  may  result  from  a  division 
of  the  firm  assets.    The  referee  acted  upon  this  rule  so  far  as  Groth 
is  concerned,  but  adopted  a  different  rule  as  to  Kersting  and  Wilms- 
mrier.     This  was  not  called  to  the  attention  of  the  court  in  any  of 
the  briefs  filed  or  oral  arguments  heard  prior  to  writing  the  first  opin- 
ion, but  was  first  mentioned  in  the  petition  for  rehearing;    but  the 
error  is  manifest,  and  the  correction   will  now  be  made.     With  this 
change  the  account  may  be  stated  as  follows; 


DISTRIBUTION   OF  ASSETS   AMONG   PAETNERS  255 

Kerstlng  &  Wilmsmeier  in  Account  with  Kerstlng  &  Co. 

To  colTertinns  for  firra $09,805  CA 

Ey  expenses  paid  fur  the  lirni (j.j.710  37 

Balauce    due $  5,089  27 

Finn  Assets. 

Due  from  C,  roth  &  P.cflvor $  8.7."»1  54 

Duo  frotn  Kcrst in^  vV;^  Wiinismeier,  as  above ri.os.')  27 

Due  from  Louis  (JroUi 8,0(X)  00 

Total    $21,840  81 

Of  this  amount  Ker.sting  &  Wilnismoior  are  ontillod  to  two-thirds  $14..W0  54 
Less  their  indebteduess  to  the  lirm,  as  above 5,0S!J  27 

Balance  due  Kerstiug  &  Wilmsmeier $  9,471  27 

Kersting  and  Wilmsmeier  are  entitled  to  judgment  for  the  amount 
due  them,  viz.  $9,471.27.  It  is  now  conceded  that  Groth  &  Becker 
and  Louis  Groth  may  properly  be  considered  as  one  and  the  same 
party  so  far  as  the  settlement  of  this  business  is  concerned.  We  will 
therefore  not  interfere  with  the  judgment  rendered  against  Groth  & 
Becker  for  $8,751.54,  but  will  correct  the  error  by  reducing  the  judg- 
ment against  Groth  from  $1,936.70  to  $719.73.  The  judgment  of  the 
Court  of  Appeals  against  Groth  &  Becker  will  therefore  be  affirmed, 
and  the  judgment  against  Groth  reduced  to  $719.73;  the  costs  in  this 
court  to  be  equally  divided  between  the  parties.  The  cause  will  be 
remanded  to  the  Court  of  Appeals  for  further  proceedings  in  accord- 
ance with  this  opinion.    Judgment  modified. 


LESERMAN  v.  BERNHEIMER  et  al. 

(Court  of  Appeals  of  New  York,  18S9.    113  N.  Y.  39,  20  N.  E.  SG9.) 

Danforth,  J.^*"  The  capital  of  the  firm  was  $225,000,  to  which 
each  partner  contributed  $75,000,  under  an  agreement  that  each  part- 
ner should  share  the  profits  and  bear  the  losses  equally  with  the  others, 
viz.,  one-third  each.  No  time  was  fixed  for  its  continuance,  and  No- 
vember 25,  1873,  Leserman  elected  to  have  the  business  wound  up,  and 
notice  to  his  partners  required  that  an  account  should  be  taken  for 
that  purpose.  This  was  done,  an  account  of  stock  taken,  and  bal- 
ance struck  as  of  the  31st  day  of  December  of  that  year;  at  which 
time  the  referee  finds  "it  was  distinctly  known  and  understood  by  all 
the  parties  that  the  partnership  was  to  be  dissolved  and  wound  up  in 
pursuance  of  the  notice  already  given  by  Leserman."  It  was  not, 
however,  formally  dissolved  until  March  13,  1874.     *     *     * 

It  was  found  that  Leserman  had  drawn  out  of  his  original  capital 
$10,499.67;    that  Bernheimer  had  increased  $56,621.39;    while  Gold- 
is  Part  of  the  opinion  and  the  statement  of  facts  are  omittedL 


256  RIGHTS    AND   DUTIES  OF    PARTNERS   INTER  SH 

smith  had  drawn  out  the  whole  of  his,  and  also  owed  the  firm  $897.99. 
After  paying  all  the  liabilities  of  the  firm,  there  remained,  according 
to  the  report,  $128,920  in  the  hands  of  the  liquidating  partner.  This 
sum  is  carried  to  the  capital  account,  and  whether  its  disposition  by 
the  referee  is  correct  presents  the  first  important  inquiry. 

1.  The  interest  of  each  partner  in  the  partnership  property  is  his 
share  in  the  surplus  after  the  partnership  accounts  are  settled  and  all 
just  claims  satisfied.  In  this  case,  by  the  terms  of  the  partnership, 
the  partners  were  to  contribute  equally,  and  to  divide  profits  and  share 
losses  equally,  from  the  beginning  of  the  partnership  to  its  dissolution. 
There  is  no  evidence  which  requires  or  would  permit  any  finding  that 
this  arrangement  had  been  changed,  nor  are  we  referred  to  such  find- 
ing. It  would  seem  to  follow  that  the  division  of  profits  and  charge 
of  losses  should  be  in  the  proportion  of  one-third  of  each  to  each 
partner.  To  carry  out  that  mode  of  adjustment  as  the  one  provided 
by  the  agreement  of  the  parties,  the  advances  made  by  either  part- 
ner beyond  the  capital  called  for  by  that  agreement  should  be  treated 
as  a  debt  due  from  the  firm,  and  paid  out  of  the  surplus  before  any 
division  is  made  upon  the  partnership  capital.  If  that  advance  was 
not  in  strictness  to  be  regarded  as  a  debt  during  the  existence  of  the 
firm,  nor  until  the  debts  of  the  firm  to  third  persons  were  satisfied, 
it  came  into  that  relation  the  moment  these  debts  were  paid,  and  the 
concern,  as  regards  its  business  and  its  outside  obligations,  wound  up. 
This  is  an  equitable  disposition  of  the  matter,  for  otherwise  the  larger 
the  advances  made  for  the  firm  the  greater  would  be  the  share  of 
losses,  or,  if  profits,  the  greater  the  share  of  profits  accruing  to  the 
partner  making  the  advance, — in  either  case,  a  result  entirely  opposed 
to  the  actual  agreement  of  the  parties,  which  exacted  equality  in  both 
respects.  Nor  is  the  rule  opposed  to  the  authorities  cited  by  the  re- 
spondent.    *     *     * 

Bernheimer  was  a  contributor  to  capital.  He  was  also  in  advance 
of  that  contribution,  and  the  sum  advanced  must  be  repaid  before  the 
surplus  can  be  ascertained,  and  from  that  surplus  alone  can  there  be 
distribution;  then  to  each  partner  equally;  and,  if  a  loss  is  incurred, 
its  ratio  must  be  ascertained,  as  originally  agreed  by  the  parties.  The 
learned  referee  has  not  dealt  with  the  appellant  Bernheimer  in  accord- 
ance with  these  rules.  He  gives  him  one-third  only  of  the  sur- 
pus  by  reason  of  his  original  capital,  and  in  accordance  with  the  same 
theory  the  learned  referee  gives  one  other  third  of  the  surplus  to 
Leserman,  and  the  remaining  third  to  Goldsmith.  This  method  would 
be  well  enough  if  the  surplus  was  sufficient  to  pay  all.  But  it  is  not, 
and,  moreover,  the  advance  made  by  Bernheimer  is  left  entirely  un- 
paid. To  cover  it,  therefore,  the  sum  advanced  is  divided  into  three 
parts,  and  Bernheimer  is  given  a  judgment  against  Leserman  for 
$18,873.72,  or  one-third,  a  judgment  against  Goldsmith  for  a  like 
amount,  or  one-third,  leaving  him  to  bear  a  certain  loss  as  to  the  re- 


paetner's  so-called  lien 


257 


maining  third,  and  imposing  on  him  the  risks  of  collecticn  as  against 
Gold:n-ith.  We  think  this  result  is  incquitahle,  and  not  required  by 
any  rule  or  principle  of  law. 

The  sum  advanced  by  Bcrnhcimer  over  his  $75,000  should  be  first 
paid  from  the  partnership  surplus,  and  the  residue  divided  among  the 
partners,  according  to  the  partnership  agreement.  Of  course.  Gold- 
smith, having  drawn  out  his  whole  capital,  could  be  entitled  to  no 
part  of  the  surplus,  and  Lesernian's  share  would  be  diminished  by 
reason  of  the  sum  already  drawn  by  him.  The  losses  entailed  upon 
the  firm,  by  reason  of  Goldsmith's  overdrafts  of  capital  or  otherwise, 
must,  of  course,  be  borne  equally.     *     ♦     ♦    Judgment  reversed. 


X.  Partner's  So-Called  Lien  ^' 


WARREN    V.    TAYLOR    et    al. 
(Supreme  Court  of  Alabama,  1877.    GO  Ala.  218.) 


h 


The  original  bill  in  this  case  was  filed  by  John  F.  Warren  against 
Joseph  W.  Taylor  and  Mrs.  Mary  C.  Benagh,  and  sought  a  settlement 
of  a  partnership  which  had  existed  between  Warren  and  Taylor,  the 
foreclosure  of  a  mortgage  which  Taylor  had  given  to  Warren  on  his 
interest  in  the  partnership  effects,  and  the  adjustment  of  the  con- 
flicting liens  of  Warren's  mortgage  and  a  mortgage  owned  by  Mrs. 
Benagh.  The  mortgage  by  Taylor  to  Warren  was  given  to  secure  him 
against  any  liability  on  account  of  certain  bills  of  exchange,  drawn  by 
Taylor,  in  the  firm  name,  for  his  personal  use,  with  Warren's  consent. 
The  mortgage  from  Taylor  to  Mrs.  Benagh  was  also  given  to  secure 
her  for  a  loan  to  Taylor  for  his  personal  use.  Both  mortgages  were 
on  Taylor's  interest  in  the  firm  of  Taylor  &  Warren.  The  mortgage  to 
Mrs.  Benagh  was  recorded  some  time  prior  to  the  mortgage  to  War- 
ren. The  chancellor  held  that  the  complainant  had  no  lien  as  a  partner, 
on  account  of  the  said  bills  of  exchange  he  had  been  obliged  to  pay, 
but  must  rely  only  on  his  mortgage,  and  that  Mrs.  Benagh's  mort- 
gage, having  been  first  recorded,  was  entitled  to  preference  over  his 
mortgage.     Decree  accordingly.     Complainant  appealed. 

Stone,  J.^*  Money  was  borrowed  separately  from  two  persons, 
each  transaction  having  its  inception  about  the  same  time — January, 
1874.  The  evidence  of  the  indebtedness  was  in  each  case  renewed 
from  time  to  time,  and  mortgages  -given  as  security  on  the  same  prop- 

17  For  a  discussion  of  principles,  see  Gilinore  on  Partnership,  §  137. 

18  Tart  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 

Gilm.Part. — 17 


258  RIGHTS    AND   DUTIES   OF    PARTNERS   INTER   SB 

erty — the  borrower's  interest  in  the  Times  newspaper  and  its  property. 
In  the  case  of  Mrs.  Benagh's  loan,  the  first  mortgage  was  executed  di- 
rectly to  her,  on  the  same  date  as  the  loan,  January  8,  1874.     This 
mortgage  was  renewed  every  three  months.     In  the  loan  by  Fitts  & 
Co.,  bankers,  the  bill  of  Taylor  &  Warren,  partners  and  joint^  owners 
of  the  Times  newspaper,  was  taken  as  security,  due  at  a  short  interval. 
This  debt  was  increased  during  the  year,  and  was  renewed  every  30 
days.     A  mortgage  on  Taylor's  interest  in  the  Times  newspaper  was 
given  to  Warren  to  indemnify  him  against  the  use  of  the  firm  name, 
Taylor  &  Warren.    This  mortgage  was  also  renewed  at  short  intervals. 
At  the  request  of  Taylor  none  of  the  mortgages  were  put  on  record 
until  March,  1875.    Each  series  of  mortgages  was  renewed  within  ev- 
ery three  months ;    and  this,  it  was  believed,  would  preserve  the  lien 
from  the  date  of  the  several  mortgages  given  in  renewal,  without  ex- 
pense and  notoriety  of  registration.     In  other  words,  it  was  believed 
that  mortgages  on  personalty  might  be  recorded  within  three  months 
after  their  execution,  and  this  would  operate  constructive  notice  to 
creditors  and  purchasers  from  their  date.    Each  of  the  loans  was  for 
the  personal  use  of  Mr.  Taylor,  and  no  part  of  the  money  was  applied 
to  the  purposes  of  the  partnership  of  Taylor  &  Warren.     Neither  Mrs. 
Benagh,  nor  Mr.  Warren,  knew  of  the  mortgage  to  the  other,  or  that 
the  other  loan  had  been  negotiated.    On  the  23d  of  March,  1875,  Mr. 
Taylor  being  short  in  the  payment  of  interest,  promised  quarterly,  to 
Mrs.  Benagh,  she  consulted  counsel,  and  on  his  advice  had  her  mort- 
gage recorded  on  that  day.     Warren's  mortgage  was  recorded  four 
days  afterwards.    The  question  presented  is,  which  has  the  paramount 
claim  on  the  mortgaged  property?     Warren  has  paid  up  the  bill  to 
Fitts  &  Co.  out  of  his  private  funds,  and  he  is  the  actor  in  this  suit. 
1.  In  settling  partnership  accounts,  each  partner  is  clothed  with  the 
right  to  insist  that  the  partnership  effects  shall  be  first  applied  to  the 
payment  of  the  partnership  debts ;    and  this  right  will  prevail  over 
the  claims  of  an  alienee  or  creditor  of  the  copartner.     So  clearly  de- 
fined  is   this   right — so   necessary   to   persons   engaging  in   joint   ad- 
ventures of  this  kind — that  it  has  been  long  and  firmly  settled  that  each 
partner  has  a  lien  on  the  effects  that  they  shall  be  applied  primarily  to 
the  extinguishment  of  the  partnership  liabilities.    This  results,  natural- 
ly and  necessarily,  from  the  nature  of  the  enterprise  and  of  the  title 
by  which  the  property  is  held.    The  title  is  in  the  company  or  associa- 
tion of  individuals,  and  no  one  of  the  number  has  a  separate  owner- 
ship or  right  to  any  part  or  piece  of  the  property  or  effects  of  the 
partnership.     And  the  lien  goes  further  than  this.     After  the  debts 
are  all  paid,  each  partner  has  a  lien  on  the  remaining  partnership  ef- 
fects for  any  balance  due  him  upon  a  proper  accounting  together.     1 
Story's  Eq.  Ju.   §   677;    Moore  v.   Smith,   19   Ala.   774;    Donelson's 
Adm'rs  v.  Posey,  13  Ala.  752;    Cannon  v.  Copeland,  43  Ala.  201; 
McGown  V.   Sprague,  23  Ala.  524;    Reynolds  v.  Mardis'  Heirs.  17 
Ala.  32;   Reese  v.  Bradford,  13  Ala.  837;    Lucas  v.  Atwood,  2  Stew 


partner's  so-called  lien  259 

378;  Emanuel  v.  Bird,  19  Ala.  59G,  54  Am.  Dec.  200;  Bridge  v.  Mc- 
Cullough's  Adm'rs,  27  Ala.  6G1 ;  Waldron  v.  Simmons,  28  Ala.  629 ; 
Andrews  v.  Keith,  34  Ala.  722;  Coster's  Ex'rs  v.  Bank  of  Georgia, 
24  Ala.  -37;  Parsons  on  Partnership,  265,  350,  351,  352,  168,  502; 
Fourth  Nat.  Bank  v.  Railroad  Co.,  11  Wall.  (U.  S.)  624,  20  L.  Ed. 
82;  Rodriguez  v.  Hefferman,  5  Johns.  Ch.  (N.  Y.)  417;  Sitler  v. 
Walker,  Freem.  Ch.  77. 

2.  The  disputed  question  in  this  case  is  whether  the  claim  of  War- 
ren is  a  partnership  demand.  There  can  be  no  question  that  it  was  a 
partnership  debt,  so  long  as  it  remained  unpaid  to  Fitts  &  Co. ;  and 
they  could  have  claimed  and  asserted  all  the  rights  against  the  part- 
nership and  its  effects  which  the  law  accords  to  partnership  creditors. 
The  bill  was  executed  in  the  firm  name,  with  the  knowledge  and  con- 
sent of  both  partners;  and  this  bound  the  firm.  Even  if  the  firm  name 
had  been  signed  by  one,  without  authority  from  the  other,  the  bill  was 
made  to  be  used,  and  was  used  in  borrowing  money;  and  there  is  no 
evidence  that  Fitts  &  Co.  knew  the  use  to  which  the  money  was  to 
be  applied.  We  are  not  prepared  to  say  that  the  debt  would  not  have 
been  a  partnership  liability,  even  if  the  bill  had  been  executed  as  last 
supposed.  Knapp  v.  McBride,  7  Ala.  19 ;  Jemison  v.  Bearing's  Ex'rS, 
41  Ala.  283;  CuUum  v.  Bloodgood,  15  Ala.  34;  2  Brick.  Dig.  306, 
§  103 ;    Sprague  v.  Zunts,  18  Ala.  382. 

The  relation  between  partners  is  one  of  generous  confidence.  In 
the  absence  of  special  agreements  to  the  contrary,  the  law  constitutes 
each  the  agent  of  the  other,  and  the  representative  of  the  firm  in  the 
conduct  of  all  the  ordinary  business  of  the  partnership.  The  act  of 
one  is  the  act  of  all.  If  it  be  a  mercantile  partnership,  a  sale  by  one  is 
a  sale  by  all.  And  a  payment  to  one  member  of  the  firm  discharges  the 
debt,  although  that  member  may  misapply  or  squander  the  money. 
It  is  not  unfrequently  the  case  that  one  partner  becomes  more  in- 
debted to  the  firm  than  another.  He  may  use  more  of  the  income  and 
effects  in  his  personal  and  private  affairs,  may  overdraw  his  share,  or 
may  anticipate  future  receipts  and  emoluments,  sometimes  with  and 
sometimes  without  his  copartner's  knowledge  or  permission.  In  ei- 
ther case,  his  share  of  the  profits,  or  of  the  capital,  if  needed,  will 
stand  incumbered  by  a  lien  to  make  good  such  deficit  to  'his  copart- 
ner ;  and  that  lien  will  be  paramount  to  the  right  of  any  alienee  or 
creditor  of  his.  "In  general,  when  a  sum  of  money  is  advanced  to  a 
partner,  or  a  partner  is  permitted  to  take  it  as  a  loan,  and  there  are 
no  express  terms  agreed  on,  his  profits  are  in  the  first  place  answer- 
able; and,  if  they  are  insufficient,  his  share  of  the  stock  goes  to  dis- 
charge this  balance ;  and,  if  that  is  insufficient,  he  becomes  a  personal 
debtor  for  the  balance."  Parsons  on  Partnership,  241.  See,  also,  3 
Kent's  Com.  marg.  p.  40  et  seq. 

If,  instead  of  borrowing  the  firm's  credit  to  raise  monev  on,  Mr. 
Taylor  had  used  its  money,  or  had  hypothecated  its  bills  receivable, 
and  thus  realized  the  sum  of  them  on  his  private  account — and  this 


2G0  RIGHTS    AND   DUTIES  OF    PARTNERS  INTER  SE 

either  with  or  without  ]\Ir.  Warren's  consent — the  rule  above  de- 
clared would  have  applied  in  all  its  force,  and  Mr.  Warren  would  have 
held  a  lien.  So,  if  there  had  been  a  partnership  debt  of  Taylor  &  War- 
ren, and  Mr.  Warren  had  paid  it  out  of  his  private  funds,  this  would 
have  given  him  a  claim  and  lien  against  Taylor's  interest  in  either 
profits  or  capital  of  the  partnership,  paramount  to  the  rights  of  cred- 
itors of  or  purchasers  from  Taylor.  And  such  creditor  or  purchaser 
w^ould  have  no  right  to  complain ;  for  he  would  realize,  by  the  trans- 
action, all  that  Taylor  could  claim.  He  would  be  entitled  to  no  more. 
In  other  words,  Mrs.  Benagh,  in  this  suit,  can  claim  what  Taylor  could 
claim,  if  he  were  suing  Warren;  no  more.  She  purchased  no  other 
right.  See  Donelson's  Adm'rs  v.  Posey,  and  other  authorities  supra. 
She  cannot  complain  of  this;  for,  purchasing  a  partner's  interest  in 
partnership  effects,  it  was  her  duty  to  inquire  of  the  other  partner  how 
the  account  stood  between  them. 

It  will  be  seen  that  we  have  placed  Warren's  superior  claim  on  the 
lien  which  the  law  gave  him  as  a  partner.  Hence  it  was  not  neces- 
sary for  him  to  take  a  mortgage,  or,  taking  it,  to  have  it  recorded. 
When  he  incurred  the  liability  for  Taylor,  by  allowing  him  to  pledge 
the  credit  of  the  firm,  he  had  no  knowledge  or  notice  of  Mrs.  Benagh's 
claim.  We  need  not  and  do  not  decide  that  his  claim  would  prevail 
over  Mrs.  Benagh's,  if,  before  the  firm  became  bound  to  Fitts  &  Co., 
he  had  been  notified  of  the  conveyance  to  her. 

We  hold  that,  after  taking  a  proper  account  between  the  partners, 
charging  Taylor  with  the  sum  paid  Fitts  &  Co.  and  interest  as  so  much 
paid  to  and  for  him  by  Warren,  the  business  manager,  and  charging 
to  each  partner  all  proper  debits,  and  allowing  to  each  all  proper  cred- 
its, if  a  balance  be  found  due  to  Warren,  he  has  a  first  lien  on  the 
partnership  effects,  income  and  capital,  for  its  payment.  This  is  his 
share  in  the  partnership  effects,  and  he  is  entitled  to  it,  before  Mrs. 
Benagh  can  take  anything  by  her  mortgage ;  any  balance  to  be  equally 
divided  between  Warren  and  Taylor,  and  the  interest  of  the  latter, 
as  far  as  necessary,  to  be  applied  to  the  payment  of  Mrs.  Benagh's 
mortgage  and  interest  thereon  from  January  1,  1876.  Should  the  bal- 
ance, on  taking  the  account,  be  found  in  favor  of  Taylor,  and  against 
Warren,  then  such  balance  to  be  a  first  lien  in  favor  of,  and  applied, 
as  far  as  necessary,  to  the  payment  of,  Mrs.  Benagh's  mortgage  debt, 
computed  as  above;  any  balance  of  partnership  effects  to  be  equally 
divided  between  the  partners,  and  Taylor's  share  to  go  to  Mrs. 
Benagh,  so  far  as  necessary  to  extinguish  her  mortgage  claim.  If 
anything  be  realized  from  the  mortgaged  property  in  Greene  county, 
the  product  to  be  applied  to  the  payment  of  Warren's  claim,  if  neces- 
sary, after  exhausting  the  partnership  effects.  Should  any  of  the  part- 
nership property  and  effects  be  used  in  paying  a  balance  found  due  to 
Warren,  and  should  any  portion  of  Mrs.  Benagh's  claim  remain  un- 
paid, and  should  there  remain  a  surplus  of  proceeds  of  the  Greene 
county  mortgaged  property,  after  paying  Warren's  claim,  then,  to  the 


partnek's  so  called  lien  261 

extent  that  Taylor's  interest  mortgaged  to  Mrs.  Benagh  is  applied  to 
Warren's  claim,  she  (Mrs.  Benagh)  is  subrogated  to  the  mortgage 
rights  of  Warren  in  the  surplus  of  the  proceeds  of  the  Greene  county 
mortgaged  property. 

The  decree  of  the  chancery  court  is  reversed,  and  a  decree  is  here 
rendered,  in  accordance  with  the  principles  declared  above.  Costs  of 
appeal  to  be  paid  by  the  appellees.     ♦     ♦     * 


262  BEMEDIES  OF    CUEDIT0R3 

REMEDIES  OF  CREDITORS 
I.  Remedies  at  Law — Creditors  of  the  Partnership  * 


MEECH  et  al.  v.  ALLEN. 
(Court  of  Appeals  of  New  York,  1S58.    17  N.  Y.  300,  72  Am.  Dec.  465.) 

Appeal  from  the  Supreme  Court.  The  complaint  averred  these 
facts:  In  May,  1817,  the  plaintiffs  recovered  a  judgment  against  one 
Taylor,  upon  his  sole  and  individual  indebtedness,  for  $8,650.G5,  which 
was  duly  docketed  and  became  a  lien  upon  his  real  estate.  In  1848 
Taylor  died,  seised  of  real  estate  in  his  own  individual  right,  upon 
which  said  judgment  was  a  lien.  Taylor  and  one  Hiram  Pratt,  who 
died  in  May,  18-40,  were  in  their  lifetime  partners  in  the  business  of 
common  carriers  upon  the  Erie  Canal  and  the  Great  Lakes.  A  demand 
arose  against  them  as  such  partners,  which  was  in  litigation  when 
Pratt  died,  and  upon  which  a  judgment  was  recovered  in  the  Supreme 
Court,  and  duly  docketed  on  the  13th  of  May,  1842,  against  Taylor, 
as  survivor  of  himself  and  Pratt,  for  $9,990.05,  which  judgment  was 
assigned  to  and  became  the  property  of  the  defendant  Allen  after 
the  death  of  Taylor  and  the  recovery  of  the  plaintiffs'  judgment.^  In 
April,  1850,  executions  were  issued  upon  both  of  the  above-described 
judgments  to  the  sheriff  of  Erie,  who  in  virtue  thereof,  on  the  4th  of 
June,  1850,  sold  certain  parcels  of  the  real  estate  in  the  city  of  Buf- 
falo, whereof  Taylor  died  seised  in  his  own  right. 

The  plaintiffs  attended  at  the  sale,  and  gave  notice  to  the  defendant 
of  the  facts  stated,  claiming  that  their  judgment  was  entitled  to 
priority  and  that  the  money  raised  by  the  sale  should  be  applied  first 
to  its  satisfaction.  The  defendant  became  the  purchaser  at  the  sale. 
There  is  no  other  individual  property  of  Taylor  out  of  which  the 
plaintiffs  can  obtain  satisfaction  of  their  judgment  except  the  land 
thus  sold,  and  there  is  sufficient  estate  of  Hiram  Pratt,  deceased,  to 
satisfy  the  judgment  of  the  defendant. 

The  complaint  prayed  that  the  land  might  be  resold  and  the  pro- 
ceeds first  applied  to  the  payment  of  the  plaintiffs'  judgment,  or  that 
the  defendant  pay  to  them  so  much  of  the  proceeds  of  the  sale  al- 
ready had  as  would  extinguish  their  judgment,  with  the  costs  of  this 
action.  The  defendant  demurred,  and  had  judgment  in  his  favor, 
which  was,  on  appeal,  affirmed  by  the  Supreme  Court  at  General  Term 
in  the  Eighth  District  whereupon  the  plaintiffs  appeal  to  this  court.  ^ 

Selden,  J. 2  It  is  a  settled  rule  of  equity  that,  as  between  the  joint 
and  separate  creditors  of  partners,  the  partnership  property  is  to  be 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  138-139. 

2  Part  of  the  opinion  is  omitted. 


REMEDIES    AT    LAW — CREDITORS    OF   THE    PARTNERSHIP  203 

first  applied  to  the  payment  of  the  partnership  debts  and  the  separate 
property  of  the  individual  partners  to  the  payment  of  their  separate 
debts,  and  that  neither  class  of  creditors  can  claim  anything  from  the 
fund  which  belongs  primarily  to  the  opposite  class  until  all  the  claims 
of  the  latter  are  satisfied.  This,  however,  is  a  rule  which  prevails  in 
courts  of  equity  in  the  distribution  of  equitable  assets  only.  Those 
courts  have  never  assumed  to  exercise  the  power  of  setting  aside  or 
in  any  way  interfering  with  an  absolute  right  of  priority  obtained  at 
law.  In  regard  to  all  such  cases  the  rule  is  equitas  sequitur  legem. 
1  Story,  Eq.  Jur.  §  553.     *     *     * 

As  there  is  no  doubt  that  at  law  the  judgment  for  a  partnership  debt 
attaches  and  becomes  a  Hen  upon  the  real  estate  of  each  of  the  part- 
ners, with  the  same  effect  as  if  such  judgment  were  for  the  separate 
debt  of  such  partner,  it  is  obvious,  from  the  preceding  authorities, 
that  the  theory  upon  which  the  complaint  in  this  case  was  drawn  is 
erroneous.  The  principle  that  the  separate  property  of  an  individual 
partner  is  to  be  first  applied  to  the  payment  of  his  separate  debts  has, 
as  we  have  seen,  never  been  held  to  give  priority  as  to  such  prop- 
erty to  a  subsequent  iudc:ment  for  an  individual  over  a  prior  judg- 
ment for  a  partnership  debt.  It  is  true  that  courts  of  equity  will 
sometimes  give  to  a  mere  equitable  lien,  which  is  prior  in  point  of  time, 
a  preference  over  a  subsequent  judgment;  but  this  will  be  done  only 
where  such  prior  lien  is  specific  in  its  character,  as  in  the  case  of  White 
V.  Carpenter,  3  Paige,  219.  The  mere  general  equity  of  the  separate 
creditors  to  have  their  debts  first  paid  out  of  the  individual  property  of 
the  partners  does  not  amount  to  a  lien  at  all,  much  less  a  lien  of  the 
kind  necessary  to  give  it  a  preference  over  a  judgment  for  a  partner- 
ship debt. 

The  plaintiffs  cannot,  under  the  averments  in  the  complaint,  avail 
themselves  of  that  principle  of  equity  which  enables  a  creditor  hav- 
ing a  lien  upon  one  fund  only  to  compel  a  creditor  who  has  a  lien, 
not  merely  on  the  same  fund,  but  also  upon  another,  to  resort  first  to 
the  latter,  to  the  end  that  both  may  be  paid.  If  the  complaint  had 
averred  that  there  was  sufficient  partnership  property,  upon  which  the 
defendant's  judgment  was  a  lien,  to  satisfy  such  judgment,  it  is  pos- 
sible that,  under  the  principle  referred  to,  the  plaintiffs  might  have 
been  entitled  to  some  relief ;  and  in  that  event  it  would  not  have  been 
a  valid  objection  to  the  complaint  that  it  did  not  ask  for  reUef  appro- 
priate to  the  case.  But  the  averment  in  the  complaint  is  simply  that 
there  is  sufficient  estate  of  the  deceased  partner,  Hiram  Pratt,  to 
satisfy  the  defendant's  judgment. 

This  averment  brings  the  case  directly  within  the  doctrine  laid  down 
by  Lord  Eldon  in  Ex  parte  Kendall,  17  Ves.  520.  He  says:  "If  A. 
has  a  right  to  go  upon  two  funds,  and  B.  upon  one,  having  both  the 
same  debtor,  A.  shall  take  payment  from  that  fund  to  which  he  can 
resort  exclusively,  that  by  those  means  of  distribution  both  may  be 
paid.  That  takes  place  where  both  are  creditors  of  the  same  person 
and  have  demands  against   funds  the  property  of  the  same  person. 


264  REMEDIES   OF    CREDITORS 

But  it  was  never  said  tliat  if  I  have  a  demand  against  A.  and  B.,  a 
creditor  of  B.  shall  compel  me  to  go  against  A.,  without  more,  as  if 
B.  himself  could  insist  that  A.  ought  to  pay  in  the  first  instance,  as  in 
the  ordinary  case  of  drawer  and  acceptor,  or  principal  and  surety,  to 
the  intent  that  all  obligations  arising  out  of  these  complicated  rela- 
tions may  be  satisfied.  But  if  I  have  a  .demand  against  both,  the 
creditors  of  B.  have  no  right  to  compel  me  to  seek  payment  from  A., 
if  not  founded  in  some  equity  giving  B.  the  right,  for  his  own  sake, 
to  compel  me  to  seek  payment  from  A." 

The  point  has  also  been  expressly  decided  in  this  state  in  the  case 
of  Dorr  v.  Shaw,  4  Johns.  Ch.  17.  The  only  difference  in  principle 
between  that  case  and  this  is  that  there  it  did  not  appear  that  the  joint 
debtors  were  partners.  This,  however,  is  a  difference  which  operates 
against  the  claim  of  the  plaintiffs  here.  Where  two  individuals,  not 
partners,  are  jointly  indebted,  it  might  seem  to  be  just  to  presume 
that  each  owed  one-half,  and  to  that  extent,  therefore,  there  might 
be  an  equity  in  favor  of  the  one  owing  an  individual  debt  to  have  so 
much  of  the  joint  debt  paid  by  his  co-debtor.  But  in  regard  to  part- 
ners it  is  now  well  settled,  upon  an  analogous  question,  that  no  such 
presumption  can  be  indulged.  Formerly  a  judgment  creditor  of  one 
of  two  partners  might  levy  his  execution  upon  property  belonging  to 
the  firm,  and,  upon  the  presumption  that  the  interests  of  the  partners 
were  equal,  might  proceed  to  sell  and  appropriate  one-half  the  avails 
to  the  satisfaction  of  his  debt.  This,  however,  was  long  since  over- 
ruled. 

In  the  case  of  Dutton  v.  Morrison,  Lord  Eldon,  in  discussing  this 
question  says:  "It  may  be  represented  that  the  world  cannot  know 
what  is  the  distinct  interest  of  each  (i.  e.,  each  partner),  and  there- 
fore it  is  better  that  the  apparent  interest  of  each  should  be  considered 
as  his  actual  interest.  But  courts  of  equity  have  long  held  other- 
wise." He  then  lays  down  the  rule,  ever  since  acted  upon,  that  the 
creditor  in  such  a  case  must  wait  until  the  partnership  accounts  are 
settled  before  he  can  claim  anything  from  the  partnership  property. 

The  principle  here  asserted  by  Lord  Eldon  is  directly  applicable  to 
the  present  case.  It  is  that  no  inference  can  be  safely  drawn,  from 
the  mere  external  relations  of  partners  to  the  world,  as  to  the  situa- 
tion of  their  affairs  inter  se,  and  that,  in  all  judicial  proceedings  in- 
volving the  latter,  an  investigation  is  first  to  be  made;  and  such  is 
the  variety  and  frequent  complexity  of  partnership  dealings  that  any 
other  rule  would  obviously  lead  to  gross  injustice.  It  is  impossible, 
therefore,  in  this  case  to  assume,  without  any  averments  on  the  sub- 
ject in  the  complaint,  that  the  estate  of  the  deceased  partner,  Pratt, 
ought,  in  equity,  to  pay  any  portion  of  the  defendant's  judgment. 
Hence,  upon  the  principles  laid  down  by  Lord  Eldon,  and  universally 
acted  upon  by  courts  of  equity,  the  complaint  is  clearly  insufficient. 

The  judgment  of  the  Supreme  Court,  therefore,  should  be  affirmed, 
with  costs. 

Judgment  affirmed. 


CEEDITOKS    OF   TUE    SEPARATE   PARTNERS  265 

II.  Creditors  of  the  Separate  Partners  • 


PARKER  V.  PISTOR. 
(Court  of  Common  Pleas,  1802.    3  Bos.  &  P.  288.) 

This  was  a  rule  calHng  on  the  plaintiff  to  show  cause  why  the  sher- 
iffs of  London  should  not  have  time  to  return  a  writ  of  fieri  facias 
to  the  first  day  of  next  term. 

The  defendant  was  one  of  two  partners,  and  the  application  was 
made  on  the  part  of  several  creditors  of  the  partnership,  and  the  ob- 
ject was  to  prevent  the  partnership  goods  from  being  sold  until  an  ac- 
count could  be  taken  of  the  several  claims  upon  this  property. 

Best,  Serjt.,  who  obtained  the  rule,  observed  that  the  sheriff  was 
only  entitled  to  take  possession  of  an  undivided,  not  of  a  separate, 
moiety  of  the  partnership  goods;  that  he  could  only  hold  that  moiety 
in  the  same  manner  as  the  defendant  himself  had  done;  and  that,  as 
the  defendant  was  not  entitled  to  sell  the  partnership  goods  without 
the  consent  of  his  partner,  the  sheriff  ought  not  to  be  obliged  to  do 
so  by  a  writ  of  venditioni  exponas.  He  mentioned  a  case  in  the  Court 
of  King's  Bench,  where  a  similar  application  had  been  made,  which 
stood  over  several  times,  and  the  rule  was  at  last  made  absolute  by 
consent;  the  plaintiff  having  been  driven  to  give  that  consent  in  con- 
sequence of  Lord  Kenyon  saying  that  the  court  would  enlarge  the 
rule  from  time  to  time  until  the  parties  did  consent.  He  also  referred 
to  Eddie  V.  Davison,  Doug.  650,  and  Taylor  v.  Field,  4  Ves.  Jr.  396, 
where  it  was  holden  that  the  joint  property  of  an  insolvent  partner- 
ship, taken  in  execution  for  a  separate  debt,  could  not  be  retained 
against  the  joint  creditors. 

Lens,  Serjt.,  contra,  insisted  that  this  was  merely  the  common  case 
of  partnership  goods  taken  in  execution;  that,  if  the  defendant  had 
any  interest  whatever,  the  sheriff  was  bound  to  take  the  partnership 
goods  and  sell  them;  if  not,  he  ought  to  return  nulla  bona.  He  ob- 
served that  in  Taylor  v.  Field  it  was  admitted  that  the  above  rule 
would  prevail  at  law,  and  in  Pope  v.  Haman,  Comb.  217,  this  dis- 
tinction is  pointed  at;  Holt,  C.  J.,  saying:  "Upon  a  judgment  against 
one  copartner  the  sheriff  may  take  the  goods  of  both  in  execution, 
and  the  other  copartner  hath  no  remedy  at  law  otherwise  than  by  re- 
taking the  goods  if  he  can ;  for  the  vendee  of  the  sheriff  becomes 
tenant  in  common  with  the  other  copartners." 

The  Court  were  of  opinion  that  there  was  no  ground  for  their  in- 
terposition ;  that  it  was  a  very  plain  case  at  law.,  and  that  all  the 
riifficvUies  were  to  be  encountered  in  equity;  that  the  safest  line  of 
conduct  for  the  sheriff  to  pursue  was  to  put  some  person  in  possession 

»  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  140. 


266  REMEDIES  OP    CREDITORS 

of  the  defendant's  share  as  vendee,  leaving  him  and  the  parties  in- 
terested to  contest  the  matter  in  equity,  where  a  bill  might  be  filed, 
stating-  that  he  had  taken  possession  of  the  property,  and  praving  that 
it  might  not  be  disposed  of,  until  all  the  claims  were  arranged.  Vide 
Chapman  v.  Koops,  3  Bos.  &  P.  289. 
Rule  discharged. 


SANBORN  et  al.  v.  ROYCE. 
(Supreme  Judicial  Court  of  Massachusetts,  1882.    132  Mass.  594.) 

Tort,  by  Charles  H.  Sanborn  and  Charles  H.  Packard,  copartners 
doing  business  under  the  firm  name  of  Sanborn  &  Packard,  for  break- 
ing and  entering  the  plaintiffs'  close  in  Boston,  and  taking  and  carry- 
ing away  certain  articles  of  personal  property  belonging  to  them,  with 
a  count  in  tort  for  the  conversion  of  the  same.  The  defendant,  a  con- 
stable of  the  city  of  Boston,  justified  under  a  writ  against  Packard, 
by  virtue  of  which  he  attached  the  property  in  question.  At  the  trial 
in  the  superior  court,  before  Putnam,  J.,  it  appeared  that  the  plaintiffs 
were  copartners  in  the  grocery  and  provision  business,  and  the  de- 
fendant was  notified  of  this  fact  at  the  time  of  the  attachment;  that 
on  May  3,  1879,  a  creditor  of  Packard  individually  sued  out  a  writ 
against  him  and  delivered  it  to  the  defendant,  who  by  virtue  of  it,  on 
]\Iay  31,  1879,  attached  all  the  property  of  the  partnership,  placed  a 
keeper  over  the  same,  and  afterwards  on  the  same  day,  by  order  of 
the  plaintiff's  attorney,  withdrew  the  keeper  and  removed  the  goods, 
and  on  June  3,  1879,  released  the  attachment,  and  left  the  goods  where 
he  found  them;  and  that  the  writ  against  Packard  was  duly  entered 
in  court  on  June  19,  1879,  and  is  now  pending.  Upon  these  facts 
the  defendant  contended,  and  asked  the  judge  to  rule,  that  he  was 
justified,  by  virtue  of  said  writ,  in  what  he  did  with  reference  to  the 
property,  and  that  the  plaintiffs  could  not  maintain  their  action.  The 
judge  declined  so  to  rule,  and  ruled  otherwise.  The  jury  returned  a 
verdict  for  the  plaintiffs,  and  the  defendant  alleged  exceptions.* 

C.  Allen,  J.  The  question  presented  in  this  case  has  been  several 
times  alluded  to,  but  has  never  been  decided  in  Massachusetts,  though 
it  has  been  the  subject  of  much  discussion  and  conflicting  opinion 
elsewhere.  It  has  been  declared  that  the  real  and  actual  interest  of 
each  partner  in  the  partnership  stock  is  the  net  balance  which  will  be 
coming  to  him  after  payment  of  all  the  partnership  debts  and  a  just 
settlement  of  the  account  between  himself  and  his  partner.  Peck  v. 
P'isher,  7  Cush.  386.  This  doctrine  is  in  accordance  with  the  great 
body  of  modern  decisions.  It  is  also  declared  in  Allen  v.  Wells,  23 
Pick.  450,  33  Am.  Dec.  757,  that  a  separate  creditor  can  only  take  and 
sell  the  interest  of  the  debtor  in  the  partnership  property,  being  his 
share  upon  a  division  of  the  surplus,  after  discharging  all  demand.^ 

■*  Part  of  the  statement  of  facts  is  omitted. 


CREDITORS  OF  THE  SEPARATE  PARTNERS  267 

upon  the  partnership.  This  rule,  also,  is  supported  by  a  great  weight 
of  authority.  It  is  rather  remarkable,  in  view  of  the  multitude  of 
cases  m  which  the  question  has  arisen  and  the  condict  of  opinion  which 
has  existed,  that  the  manner  in  which  a  creditor  of  one  member  of  a 
firm  may  apply  that  member's  interest  in  the  partnership  to  the  pay- 
ment of  his  debt  has  not  been  more  often  the  subject  of  legislation. 
The  rights  of  parties,  however,  in  this  state,,  as  in  almost  all  the  states 
of  the  Union,  are  still  left  to  be  worked  out  as  well  as  possible  by  the 
courts.  There  is  an  entire  concurrence  of  opinion  among  the  leading 
text-writers,  in  recent  times,  that  courts  of  law  cannot  adequately  deal 
with  the  subject.  3  Kent,  Com.  65,  note;  Story,  Part.  §§  2G2,  312; 
Collyer,  Part.  (6th  Ed.)  §  793.  Lindley  sums  up  what  he  has  to  say 
with  the  remark:  "The  truth,  however,  is  that  the  whole  of  this 
branch  of  the  law  is  in  a  most  unsatisfactory  condition  and  requires 
to  be  put  on  an  entirely  new  footing."  Lindley,  Part.  (4th  Ed.)  694. 
•It  is  sufficient,  for  the  purposes  of  the  present  case  to  decide,  as 
we  do,  that  the  seizure  and  actual  removal  of  specific  chattels  of  a 
partnership  on  mesne  process  or  execution  against  one  member  thereof 
for  his  private  debt,  and  the  exclusion  of  the  firm  from  the  possession 
of  its  property,  are  a  trespass.  The  authorities  in  support  of  this 
proposition  seem  to  us  more  in  accordance  with  just  legal  principle? 
than  those  which  are  opposed  to  it.  Fourth  Nat.  Bank  v.  Railroad 
Co.,  11  Wall.  (U.  S.)  624,  628,  529,  20  L.  Ed.  82;  Cropper  v.  Coburn. 
2  Curt.  (U.  S.)  465,  Fed.  Cas.  No.  3,416;  Burnell  v.  Hunt,  5  Jur. 
650,  by  Patteson,  J.;  Garvin  v.  Paul,  47  N,  H.  158;  Durborrow's 
Appeal,  84  Pa.  404;  liaynes  v.  Knowles,  36  Mich.  407;  Levy  v. 
Cowan,  27  La.  Ann.  556. 
Exceptions  overruled. 


PLACE  V.  SWEETZER  et  al. 
(Supreme  Court  of  Ohio,  1847.     16  Ohio,  142.) 

This  is  a  bill  in  chancery,  reserved  in  the  county  of  Delaware.  John 
W.  Place,  the  complainant,  Adam  Wolf,  and  Abraham  Wolf  were 
partners,  carrying  on  mercantile  business  in  Delaware  county,  and, 
while  they  were  so  in  partnership,  Sweetzer,  one  of  the  defendants, 
having  two  judgments  in  the  court  of  common  pleas  of  that  county 
against  said  Adam  Wolf,  amounting  together  to  somewhat  more  than 
$1,400,  and  the  defendant  Cone  having  a  judgment  in  the  same  court 
for  about  $150,  took  out  executions  by  virtue  of  which  the  sheriff 
levied  upon  the  stock  of  goods  of  the  firm  and  took  them  into  his 
possession.  The  complainant,  then  another  of  the  partners,  brought 
this  bill,  seeking  to  enjoin  the  judgment  creditors  from  selling  the 
partnership  elYccts  to  satisfy  the  separate  debt  of  one  of  the  part- 
ners. There  is  a  cross-bill  also,  filed  by  the  judgment  debtor,  Adam 
Wolf,  wherein  he  states  that  he  transferred  to  Sweetzer  a  certain 
quantity  of  pork  and  lard,  which  was  to  be  sold  and  the  proceeds 


268  REMEDIES  OF    CREDITORS 

thereof  applied  toward  the  payment  of  one  of  the  judgments;  that 
this  pork  and  lard  were  sold,  but  the  proceeds,  through  the  neglect 
and  misconduct  of  Sweetzer,  were  entirely  lost,  and  not  so  applied; 
that  Sweetzer  ought  to  account  for  the  amount  of  sales,  and  give  a 
credit  for  it  upon  one  of  the  executions.  The  cause  comes  on  for  hear- 
ing upon  bill,  cross-bill,  answers,  replication,  and  testimony. 

Avery,  J.  The  first  question  arising  in  this  case  is  whether  the 
original  bill,  with  its  m junction,  can  be  sustained.  This,  of  course, 
must  depend  upon  the  rights  of  a  judgment  creditor  having  an  exe- 
cution against  one  of  the  partners  for  his  separate  debt. 

The  goods  of  the  firm,  being  personal  property,  and  held  always 
subject  to  levy  under  an  execution  at  law  against  all  the  partners 
for  a  partnership  debt,  must  be  deemed  to  be  held  by  the  same  title, 
and  the  share  of  each  partner  to  be  held  likewise  subject  at  law  to 
levy  under  an  execution  against  him  individually.  But  though  this 
property  may  be  seized,  and  thus  withdrawn  from  the  debtor's  con- 
trol, it  does  not  necessarily  follow  that  it  must  be  sold  also  under  the 
execution.  If  the  sale  could  not  be  restrained,  great  injustice  might 
very  often  be  the  consequence;  for  in  many,  perhaps  in  most,  cases 
neither  the  sheriff,  nor  the  debtor,  nor  any  other  person,  could  make 
known  at  the  sale  what  property  the  purchaser  would  take.  The  in- 
terest of  the  partner  cannot  be  ascertained  till  all  the  partnership  ac- 
counts are  arranged;  and  it  is  well  settled  that  this  interest  is  a  cer- 
tain share  of  the  surplus  after  all  of  the  demands  against  the  firm, 
including  those  of  the  partners  individually,  are  paid.  It  is  this  share 
of  the  surplus  only  which  can  be  sold  under  execution,  and  to  secure 
a  fair  sale  of  it  the  value  must  be  known.  This  can  be  accomplished 
through  the  aid  of  a  court  of  equity  alone,  where  all  the  intricate 
affairs  of  a  partnership  may  be  examined  and  adjusted.  A  resort 
to  this  court,  in  cases  like  the  present,  may  become  important  to  se- 
cure the  rights,  sometimes  of  judgment  creditors,  at  other  times  of 
the  debtor,  and  sometimes,  as  here,  to  secure  the  rights  of  other  part- 
ners. We  see  no  objection  to  allowing  the  remedy  in  either  case. 
The  present  complainant,  when  the  levy  was  made,  had  at  once  a  di- 
rect interest  to  bring  the  concerns  of  the  partnership  to  a  close,  to 
apply  the  effects  of  every  description  to  the  payment  of  debts  of  the 
firm,  and  to  prevent  a  sacrifice  of  the  judgment  debtor's  share,  be- 
cause by  such  a  sacrifice  his  own  share  might  be  burdened.  The  com- 
plainant prays  that  an  account  be  taken  between  the  parties  of  the 
amount  due  by  the  firm,  that  the  same  be  first  paid  out  of  the  property 
of  the  firm,  and  that  complainant's  interest  in  the  surplus  be  paid, 
before  execution  creditors  be  permitted  to  assert  their  claims  on  the 
property  and  apply  it  to  the  payment  of  the  separate  debt  of  Adam 
Wolf.  This  prayer  of  the  bill  will  be  granted,  the  accounts  be  sent 
to  a  master  for  examination  and  report,  and  the  injunction  in  the 
meantime  be  continued.  The  cross-bill  will  be  dismissed,  as  the  al- 
legations are  not  sufficiently  supported  by  the  proof. 


CEEDITOBS   OF   THE   SEPARATE    PARTNERS  2G9 

JOHNSON  V.  WINGFIELD  ct  a!. 

(Court  of  Chancery  Appeals  of  Tennessee.  1897.     42  S.  W.  203.) 

Barton,  J  °    This  cause  is  before  us  on  bill  and  demurrer.    The  de- 
murrer was  sustained,  and  the  bill  dismissed.     Complainant  appealed, 
and  assigns  errors.    The  main  question  presented  in  the  case  is  whether 
in  this  state  specific  property  belonging  to  the  firm  is  subject  to  levy 
for  the  individual  debt  of  one  of  the  members  of  the  firm.     The  case 
made  in  the  bill  substantially  is  as  follows:     The  complainant  shows 
and  avers  that  he  had  obtained  before  a  justice  of  the  peace  in  Ham- 
ilton  county   two   judgments   against   the    defendant   Wingfield,    on 
which  executions  had  been  issued  and  certified,  in  pursuance  of  sec- 
tion 3786  of  the  Code  of  Tennessee,  to  Hamblen  county,  where  exe- 
cutions had  been  issued,  which  were  placed  in  the  hands  of  a  con- 
stable, and  by  him,  on  the  2d  day  of  January,  1890,  levied  on   the 
interest  of  Nisbet  Wingfield  in  a  lot  of  iron  pipe  and  other  material, 
the  property  of  the  firm  of  J.  N.  Hazelhurst  &  Co.,  a  firm  composed 
of  J.  N.  Hazelhurst  and  Nisbet  Wingfield,  in  which  firm,  it  is  alleged, 
Hazelhurst  and  Wingfield  were  equal  partners."*  It  is  further  alleged 
that  the  interest  so  levied  on  in  the  partnership  property  was  advertised 
and  sold  according  to  law  by  the  constable  making  the  levy  at  public 
sale  in  the  city  of  Alorristown,  on  the  5th  of  January,  189G.     It  is 
further   charged  that  J.   N.   Hazelhurst  and   Wingfield   continued   as 
partners,  under  the  firm  name  of  Hazelhurst  &  Co.,  until  January  7, 
1896,  when  the  firm  dissolved;   upon  what  terms  and  conditions,  com- 
plainant does  not  know,  but  it  is  charged  that  there  was  no  partner- 
ship settlement  had  between  the  partners,  and  that  the  purpose  and 
object  of  the  dissolution  of  the  partnership  was  to  embarrass  and  de- 
feat the  collection  of  complainant's  execution.     It  is  further  charged 
that  on  January  7,  1896,  a  new  partnership  was  organized,  under  the 
old  firm  name  of  J.  N.  Hazelhurst  &  Co.,  composed  of  J.  N.  Hazel- 
hurst and  D.  R.  H.  Plant,  and  that  this  firm  was  engaged  in  the  com- 
pletion of  the  waterworks  for  the  city  of  Morristown,  under  the  con- 
tract made  for  that  purpose  by  the  old  company.     It  is  charged  that, 
after  the  sale  was  made,  the  statement  was  made  by  one  of  the  attor- 
neys of  Hazelhurst,  a  member  of  both  firms,  who  had  been  present 
and  made  a  bid  at  the  sale  of  the  property,  that  Wingfield  was  no 
longer  a  member  of  the  firm,  and  had  no  interest  in  any  other  property 
which  belonged  to  the  old  firm  of  Hazelhurst  &  Co.     It  charged  that 
the  new  firm,  composed  of  IJazelhurst  and  Plant,  had  full  knowledge 
of  the  complainant's  levies;    that  the  property  levied  on  was  reason- 
ably worth  in  the  market,  at  the  time  of  the  levy,  $3,000;    and  that 
Wingfield's  interest  in  the  property  was  at  the  time  of  the  sale  and 
purchase  by  the  complainant,  who  was  the  purchaser  at  the  execution 
sale,  reasonably  worth  $1,500;    that  complainant  notified  Hazelhurst 

t  Part  of  the  opinion  is  omitted- 


270  REMEDIES   OF    CREDITORS 

&  Co.  not  to  move  or  interfere  with  the  pipe  until  his  interest  was  paid 
for;  that  Ilazelhurst  &  Co.  disregarded  the  notice  and  complainant's 
rights  in  the  property,  and  converted  the  same  to  their  use,  in  the 
construction  of  the  waterworks,  a  few  days  after  complainant  had  pur- 
chased Wingfield's  interest  in  the  partnership  property;  that  com- 
plainant was  damaged  by  the  conversion  fully  $1,500.  It  is  further 
shown  that  the  new  members  of  the  firm  of  Hazclhurst  &  Co.  were 
nonresidents;  that  they  had  a  fund  coming  to  them  in  the  First  Na- 
tional Bank  of  Morristown,  against  which  an  attachment  was  prayed 
and  issued.  The  prayer  of  the  bill  is  that  a  partnership  account  be  had 
and  stated  between  the  defendant  J.  N.  Hazelhurst  and  Nisbet  Wing- 
field,  so  as  to  ascertain  what  interest  Wingfield  had  in  the  partnership 
property  described  in  the  levies,  and  the  value  of  that  interest  at  the 
time  the  levies  were  made,  at  the  time  of  the  sale,  and  also  at  the 
time  when  the  property  was  converted  by  J.  N.  Hazelhurst  &  Co.,  and 
for  a  decree  against  J.  N.  Ilazelhurst  &  Co.  and  R.  H.  Plant,  or  the 
new  firm  of  Hazelhurst  &  Co.,  for  the  amount  so  found,  and  for  gen- 
eral relief.  It  is  also  shown  in  the  bill  tliat  the  old  firm  of  Hazel- 
hurst &  Co.  had  other  property  at  the  time  of  the  levies  besides  that 
levied  on,  it  appearing  that  certain  property  was  levied  on  belonging 
to  the  firm,  and  that  was  released,  and  levy  made  on  other  property. 
The  proceedings  before  the  justice  of  the  peace,  the  executions,  and 
the  return  of  the  officer,  are  made  exhibits  to  the  bill.  The  officer's 
return,  in  substance,  is  that  he  levied  on  all  the  right,  title,  and  in- 
terest which  Nisbet  Wingfield,  as  member  of  the  firm  of  J.  N.  Hazel- 
hurst &  Co.,  had  in  the  following  personal  property,  situated  and 
being  in  Morristown,  Tenn.,  on  the  Southern  Railway's  side  track, 
to  wit,  25  iron  fire  plugs,  etc.,  described  in  the  paper.  Both  executions 
also  show  due  sale  of  the  property  after  advertising,  the  property  in 
each  instance  being  bid  in  by  the  complainant,  Johnson,  for  $15. 
The  defendants  filed  a  demurrer  and  answer,  the  demurrer  being  in- 
corporated in  the  answer;  the  substance  and  point  of  demurrer  be- 
ing that  a  levy  cannot  be  made  on  a  certain,  specific  part  of  partner- 
ship property  for  the  individual  debt  of  one  of  the  members  of  the 
firm,  as  the  bill  shows  was  done  in  this  case,  and  that,  to  reach  a  part- 
ner's interest  in  partnership  property,  the  levy  must  be  made  upon 
all  the  partnership  property.  The  point  is  made  that  the  partnership 
owned  as  an  entirety  the  particular  assets  of  the  partnership,  and  had 
a  right  to  use  the  same  in  the  business  of  the  partnership;  that  the 
purchaser  would  be  required  simply  to  take  the  interest  of  the  debtor 
partner,  and  would  have  no  right  to  maintain  this  bill  for  trover  or 
conversion  of  the  specific  property  levied  on.  The  answer  filed  denies 
that  the  interest  of  Wingfield  at  the  time  of  the  levy  amounted  to  any- 
thing, and  asserts  there  was  an  excess  of  liabilities  at  that  time  over 
assets.  As  stated,  the  demurrer  was  sustained,  and  the  bill  was  dis- 
mi<^sed.     *     *     * 

These  extracts  will  show  into  what  confusion  this  subject  has  fallen 
by  reason  of  the  early  decisions  in  all  the  states,  evidently  based,  as 


CREDITORS    OF   THE    SEPARATE    PARTNERS  271 

stated  by  the  text-writers  from  whom  we  have  quoted,  on  an  errone- 
ous conception,  or,  rather,  a  failure  to  recognize  tlie  true  status  of  part- 
nership property.  It  is  well  settled  everywhere  that,  as  to  partner- 
ship property,  partners  are  trustees  of  the  partnership,  as  to  each  other 
and  the  advantages  derived  from  it  inure  to  the  benefit  of  the  firm. 
And  it  is  undoubtedly  true  that  a  firm  or  its  members  could,  by  in- 
junction, or  other  appropriate  remedy,  prevent  a  partner  from  divert- 
ing- partnership  property  to  his  individual  use,  to  the  damage  of  the 
firm,  and  could  prevent  him  from  exercising  rights  of  possession  and 
control  which  would  be  destructive  of  the  purposes,  or  an  injury  to 
the  business,  of  the  firm.  It  is  also  well  settled,  as  a  general  rule, 
that  an  execution  cannot  reach  any  higher  interest  in  property  than 
the  debtor  himself  has;  and  yet  all  these  decisions  which  justify  an 
officer  in  taking  exclusive  possession  of  firm  property  would  seem  to 
ignore  these  just  principles,  which  are  so  absolutely  necessary  to  the 
successful  operation  of  partnership  business.  It  would  seem  to  be  a 
contradiction  of  terms  and  principles  to  hold  that  the  officer  only  takes 
and  the  purchaser  only  gets  the  interest  which  a  partner  may  have  in 
partnership  property  after  a  firm  has  been  wound  up  and  liquidated, 
and  the  partner's  ultimate  interest  thus  ascertained,  and  that  an  officer 
may  seize  partnership  property,  and  retain  exclusive  possession  of  it 
until  the  sale,  he  thus  being  enabled  to  do  what  the  individual  partner 
would  have  no  right  to  do.  And  it  also  seems  a  violation  of  fundamen- 
tal rights,  and  the  taking  of  private  property  without  compensation,  to 
hold,  as  we  understand  was  held  in  the  case  of  Haskins  v.  Everett,  su- 
pra, that  where  a  partnership  has  endeavored  to  assert  its  rights  of  pos- 
session by  a  replevin  suit  as  against  an  officer  who  had  levied  on  the 
property  for  the  individual  debt  of  one  of  its  members,  it  would  be 
liable  for  damages  for  the  use  and  detention  of  its  own  property.  It 
would  seem  that  many  perplexing  questions  might  arise  out  of  this 
holding.  Suppose  different  executions  were  levied  on  dift'erent  ar- 
ticles or  lots  of  personal  property  belonging  to  a  partnership  for  the 
individual  debt  of  a  member  of  the  firm,  and  on  an  accounting  and 
liquidation  it  was  ascertained  that  the  interest  of  the  debtor  partner 
was  only  sufficient  to  pay  one  of  the  claims;  what  claim  would  have 
priority?  It  seems  to  be  clear  that,  as  long  as  property  has  not  been 
converted  by  a  partner,  and  is  being  used,  or  subject  to  be  used,  for 
the  legitimate  purposes  of  the  partnership,  no  partner  has  any  certain 
or  exclusive  or  special  interest  in  any  specific  partnership  property, 
but  it  is  the  property  of  the  entity,  the  firm.  How,  then,  can  a  cred- 
itor or  an  officer  take  any  specific  interest  in  any  particular  piece  of 
property  belonging  to  the  firm  under  such  an  execution,  levy,  and  sale? 
Let  us  suppose  that  a  creditor  having  a  debt  amounting  in  the  aggre- 
gate to  about  $500,  as  in  this  case,  levies  on  partnership  property 
worth  $.3,000,  and  another  creditor,  having  a  debt  of  $1,500.  levies  at 
a  subsequent  time  on  another  article  of  partnership  property  v/orth 
$1,500.     On  an  accounting  it  is  ascertained  that  the  debtor  partner's 


272  REMEDIES   OF    CREDITORS 

interest  in  the  firm  at  the  time  of  the  levies  amounted  to  $1,500.  The 
property  worth  $3,000  was  sold,  and  bid  in  by  the  execution  creditor, 
at  $500,  in  satisfaction  of  the  first  debt  mentioned.  What  will  be  the 
result?  At  the  time  of  the  first  levy,  if  the  debtor  partner  is  to  be 
charged  with  one-half  the  property  levied  on,  as  taken  out  in  his  in- 
terest, it  would  absorb  all  his  interest  in  the  firm.  In  other  words, 
does  the  levy  on  specific  property  appropriate  any  specific  property, 
Dr  only  the  debtor's  interest  in  the  firm  ?  It  would  seem  that  by  far  the 
more  sensible  and  enlightened  method  of  reaching  a  partner's  interest 
in  the  firm  would  be  by  garnishment,  as  provided  by  statute  in  Geor- 
gia ;  and,  as  said  in  Freem.  Ex'ns,  it  would  seem  to  be  a  subject  de- 
serving of  legislative  attention.  The  hardship  that  might  result  from 
carrying  out  the  rule  laid  down  in  this  state  in  the  cases  in  4  Sneed, 
531,  and  12  Heisk.  317,  could  be  well  illustrated  by  this  case,  where 
the  firm  had  a  contract  to  build  an  extension  system  of  waterworks. 
A  part  of  the  material  necessary  to  the  completion  of  the  contract  was 
levied  on  and  sold  by  an  officer  for  the  individual  debt  of  one  of  the 
members,  and  it  is  stated  in  the  bill  that  the  purchaser,  the  complain- 
ant in  this  case,  notified  the  other  partner  that  he  must  not  move  or 
do  anything  with  this  property  until  his  interest  was  paid  for.  It 
seems  that  this  partner  paid  no  attention  to  this  direction ;  and  it 
svould  clearly  appear  that,  if  the  complainant  had  had  it  in  his  power 
to  enforce  the  directions  given  by  him,  it  would  not  only  have  resulted 
in  great  dair.age  and  ruin  to  the  firm's  business,  but  also  to  the  other 
partner,  who  was  in  no  way  to  blame  for  Wingfield's  indebtedness. 
But,  whatever  trouble  may  arise  from  these  holdings  we  do  not  feel 
at  liberty,  in  this  court,  to  depart  from  what  we  understand  to  be  well- 
settled  principles  in  this  state.  Nor  do  we  wish  to  be  understood  as 
criticising  the  holdings  of  our  Supreme  Court  upon  this  subject,  further 
than  to  call  attention  to  the  seeming  inconsistencies  that  arise  there- 
from, and  which  are  common  to  all  the  earlier  cases  in  almost  every 
state  in  the  Union,  as  well  as  in  England.  But,  for  the  purposes  of 
this  case,  we  may  state  that  we  understand  the  decisions  in  this  state 
from  which  we  have  above  quoted  to  settle  the  following  points:  (1) 
That  partnership  property  may  be  levied  on  by  the  creditor  for  the 
individual  debt  of  a  member  of  the  firm.  (2)  That  specific  property 
may  be  levied  on,  and  it  is  not  necessary  that  the  execution  Ije  levied 
upon  all  the  property  of  the  firm.  (3)  That  the  officer  may,  and  that 
in  fact  it  is  his  duty  to,  take  actual  possession  of  the  property  levied 
Dn,  and  to  retain  it  until  the  sale  is  made.  (4)  That  the  purchaser 
only  takes  the  interest  of  such  judgment  debtor  after  the  settlement 
and  adjustment  of  the  partnership  accounts,  as  is  the  language  used 
in  the  case  of  Haskins  v.  Everett,  supra,  or  a  mere  right  to  an  ac- 
counting, as  stated  in  another  case.  (5)  That,  as  stated  by  Judge 
Freeman  in  Lincoln  Sav.  Bank  v.  Gray,  12  Lea,  459,  a  levy  is  neces- 
sary in  order  to  fix  a  lien  so  as  to  authorize  the  filing  of  a  bill. 

These  points  being  settled,  it  results,  in  our  opinion,  that  the  chan- 
cellor was  in  error  in  dismissing  the  complainant's  bill.     While  we 


GABNISHMKNT   OF   PAETNERSHIP   DEBTOE8  273 

think  that  Hazelhurst  had  the  right  to  use,  and  properly,  whether  by 
himself,  or  by  the  new  firm  of  Hazelhurst  &  Co.,  used,  the  iron  which 
had  been  levied  on,  in  carrying  out  the  contract  and  business  of  the 
old  firm,  still  it  is  the  logical  effect  of  the  decisions  which  we  have 
quoted  that  the  creditor,  Johnson,  having  the  right  to  have  the  prop- 
erty levied  on,  by  the  sale  and  purchase  took  whatever  interest  Wing- 
field  had  in  this  property  at  that  time,  which  could  only  be  ascertained 
by  an  accounting,  and  that  this  he  has  a  right  to  do.  If  it  shall  turn 
out  on  an  accounting  that  at  the  time  of  the  levy  the  liabilities  of  the 
firm,  as  claimed  in  the  answer  filed  with  the  demurrer,  exceeded  the 
assets,  and  that  the  firm  was  insolvent,  then  Johnson  will,  of  course, 
take  nothing  by  his  purchase ;  and  it  is  also  clear  that  Johnson's  in- 
terest could  not  exceed  the  value  of  Wingfield's  share  in  all  the  part- 
nership assets  after  all  partnership  debts  were  paid,  and  all  charges 
against  him  in  favor  of  Hazelhurst  were  settled.  The  logical  result 
of  our  cases  on  this  subject  seems  to  be  that  the  taking  by  the  officer 
has  practically  the  same  effect  as  the  withdrawal  and  conversion  of 
that  amount  of  property  by  the  debtor  member  of  the  firm,  subject 
to  being  compelled  to  return  such  an  amount  of  the  property  after 
the  exhaustion  of  other  partnership  property  as  might  be  necessary 
to  pay  all  partnership  debts,  and  to  secure  to  the  other  partner  his 
just  share  and  division  of  the  partnership  assets.  For  these  reasons 
the  decree  of  the  chancellor  will  be  reversed,  and  the  cause  remanded 
to  be  further  proceeded  with,  with  directions  to  refer  the  cause  to 
the  master  to  take  an  account,  and  to  ascertain  and  report  the  condi- 
tion of  the  old  firm  of  Hazelhurst  &  Co.  at  the  time  of  the  levies  made, 
as  shown  in  the  bill;  and  the  complainant  will  be  entitled  to  a  decree 
for  the  value  of  Wingfield's  interest  in  the  property  levied  on,  if  any, 
on  the  lines  indicated  in  this  opinion.  The  decree  of  the  chancellor 
is  reversed,  the  demurrer  overruled,  and  the  cause  remanded,  as  stated, 
and  the  defendants  will  pay  the  costs  of  the  appeal. 


III.  Garnishment  of   Partnership   Debtors* 


PEOPLE'S  BANK,  Garnishee,  v.  SHRYOCK  et  al. 
(Court  of  Appeals  of  Maryland,  1S77.    48  Md.  427,  30  Am.  Rep.  476.) 

Brent,  J.^  The  appellees,  having  obtained  a  judgment  against 
William  H.  Trego,  issued  upon  it  an  attachment  by  way  of  execution. 
This  attachment  was  laid  in  the  hands  of  the  People's  Bank  of  Balti- 
more, to  bind  the  interest  of  the  defendant,  Trego,  in  a  sum  of  money 

6  For  a  discussion  of  principles,  see  Gilniore  on  Partuersbip,  §  141. 
T  Part  of  the  opinion  is  omitted. 
Gilm.Part.— 18 


274  REMEDIES   OF    CREDITOUS 

standing  upon  the  books  of  the  bank  to  the  credit  of  the  firm  of  Trego 
&  Kirkland,  of  which  firm  Trego  was  a  partner. 

The  question  then  arises,  is  a  debt  due  to  a  copartnership  hable  to 
attachment  at  the  suit  of  a  creditor  of  one  of  the  partners?    If  the  at- 
tachment had  been  laid  upon  the  tangible  effects  of  the  firm,  there 
would  be  no  doubt  of  the  right  to  do  so;    for  all  the  authorities  con- 
cur that  the  property  of  a  firm  may  be  sold  for  the  debt  of  one  of  the 
partners.     When   sold,   the  vendee  purchases   and   is   substituted   to 
nothing  more  than  the  interest  of  the  partner,  which  afterwards  be- 
comes the  subject  of  ascertainment  by  a  proper  adjustment  of  the 
respective  interests  of  the  partners.     The   rights  of  copartners  and 
creditors  of  the  firm  are  not  thereby  sacrificed  or  disturbed.     But 
where  a  debt  is  the  subject  of  attachment,  the  judgment,  if  obtained 
against  the  garnishee,  changes  the  right  to  the  fund  without  any  set- 
tlement of  partnership  account,   and  vests  in   the  attaching  creditor 
an  absolute  claim  to  the  payment  over  to  him  of  so  much  money.     In 
Drake  on  Attachment,  §  567,  the  author  says:     "The  attachment  of 
a  debt  due  to  a  copartnership  in  an  action  against  one  of  the  partners 
is  justly  distinguishable  from  the  seizure  on  attachment  or  execution 
of  tangible  effects  of  the  firm  for  the  same  purpose."     He  refers  to 
the  case  of  Winston  v.  Ewing,  1  Ala.  129,  34  Am.  Dec.  768,  and 
this  case  is  a  very  strong  one  upon  the  question  now  presented  for 
our  decision.    There  it  was  sought  to  subject  the  debt  due  to  a  firm  to 
an  attachment  issued  against  one  of  the  partners.    The  court  held  that 
this  could  not  be  done.    The  property  of  the  partnership,  it  was  con- 
ceded, was  liable  to  execution  and  sale  for  the  separate  debt  of  a 
partner;    the   vendee   under   such   sale   becoming  tenant   in   common 
with  the  other  partner.     But  it  was  otherwise  held  in  regard  to  a 
debt  due.    The  court  says:    "It  has  been  expressly  adjudged  that  the 
interest  of  one  partner  in  a  debt  due  to  the  partnership  cannot  be 
subjected  by  process  of  attachment  to  the  satisfaction  of  the  separate 
debt  of  that  partner,  without  showing  from  the  state  of  the  partner- 
ship accounts,  as  between  the  partners  and  with  reference  to  the  in- 
debtedness  of   the    partnership,    what   the    right   or    interest   claimed 
amounts  to."    The  authorities  cited  are  Fisk  v.  Herrick,  6  Mass.  272, 
Lyndon  v.  Gorham,  1  Gall.  (U.  S.)  367,  Fed.  Gas.  No.  8,640,  Church 
V.  Knox,  2  Conn.  514,  and  Brewster  v.  Hammet,  4  Conn.  540;    and 
they  conclusively  show  that  an  attachment  like  the  present  would  not 
be  maintained  in  the  courts  of  either  Massachusetts  or  Connecticut. 
In  Lyndon  v.  Gorham,  1  Gall.  (U.  S.)  367,  Fed.  Cas.  No.  8,640,  de- 
cided' by  Judge  Story,  that  learned  judge  says:     "In  order  to  ad- 
judge the  trustee  responsible  in  this  suit,  it  must  be  decided  that  the 
funds  of  one  partnership  may  be  applied  to  the  payment  of  the  debts 
of  another  partnership  upon  the  mere  proof  that  the  principal  debtor 
has  an  interest  in  each  firm.     If  this  be  correct,  it  will  follow  that  a 
separate  creditor  of  one  partner  will  have  greater  equitable  as  well  as 
legal  rights  than  the  partner  himself  has.     The  general  rule  undoubt- 
edly is  that  the  interest  of  each  partner  in  the  partnership  funds  is 


GARNISHMENT   OF   PARTNERSHIP   DEBTORS  275 

only  what  remains  after  the  partnership  accounts  are  taken;  and  un- 
less, upon  such  an  account,  the  partner  be  a  creditor  of  the  fund, 
he  is  entitled  to  nothing."  In  Johnson  v.  King,  6  Humph.  (Tenn.) 
233,  it  is  said:  "The  question  in  this  case  is  whether  an  execution 
creditor  of  one  member  of  a  partnership  is  entitled  to  a  judgment 
in  a  garnishment  proceeding  against  a  debtor  to  such  partnership. 
This  question  we  decide  in  the  negative.  Such  debt  belongs  to  and 
is  assets  of  the  partnersliip,  primarily  liable  to  the  satisfaction  of  part- 
nership debts.  If  a  judgment  were  given  at  law,  upon  the  garnish- 
ment proceeding  against  the  debtor  of  the  partnership,  to  satisfy  the 
separate  liability  of  one  of  the  partners,  it  would  unjustly  abstract  a 
portion  of  the  fund  primarily  belonging  to  the  objects  and  purposes 
and  creditors  of  the  concern.  And  in  such  garnishment  nothing  can 
be  done  but  to  give  or  refuse  the  judgment.  The  court  has  no  power 
to  impound  the  debt,  until  by  the  adjustment  of  all  the  partnership 
affairs  it  shall  appear  whether  the  separate  debtor  of  the  execution 
creditor  has  any,  and  what,  interest  in  the  general  surplus,  or  in  the 
particular  debt  so  impounded.  Such  proceedings  cannot  take  place 
at  law." 

We  have  quoted  at  length  from  this  case,  because  the  views  there 
expressed  seem  to  be  specially  appropriate  to  the  case  before  us. 
The  proceeding  of  attachment  in  this  state  is  essentially  a  legal  pro- 
ceeding, and  in  no  way  appropriate  to  ascertain  and  settle  the  equitable 
rights  between  the  garnishee  and  defendant,  or  to  ascertain,  by  ad- 
justing the  partnership  affairs,  the  true  interest  of  the  defendant  in 
the  fund  attached.  The  only  judgment  which  could  be  given  against 
the  garnishee  would  be  for  a  proportion  of  the  money  due  the  partner- 
ship, that  proportion  to  be  measured  by  the  number  of  the  members 
composing  the  firm  and  the  amount  due  the  attaching  creditor.  This 
would  certainly  be  against  the  weight  of  authorities  in  this  country, 
and  in  most  cases  productive  of  the  greatest  injustice. 

In  the  cases  of  Sheedy  v.  Bank,  Garnishee,  G3  ]\Io.  18,  21  Am.  Rep. 
407,  and  Myers  v.  Smith  et  al.,  29  Ohio  St.  120,  both  decided  in  1876, 
it  was  held  that  partnership  demands  cannot  be  garnished  for  the 
separate  debt  of  one  of  the  partners.  And  to  the  same  effect  are  the 
decisions  in  Vermont,  New  Hampshire,  New  York,  Louisiana,  and 
Mississippi.  See  Drake  on  Attachment  (4th  Ed.)  §  570,  and  notes. 
The  exception  to  this  rule  is  where  equity  powers  have  been  conferred 
by  statute  upon  the  common-law  courts,  and  when  by  virtue  of  such 
powers  they  can  compel  a  settlement  of  the  partnership  for  the  pur- 
pose of  ascertaining  whether  one  of  the  partners  has  such  an  interest 
in  a  particular  debt  due  the  firm  as  to  justify  its  appropriation  to  the 
payment  of  his  individual  indebtedness.  As  no  such  powers  have 
been  conferred  upon  the  common-law  courts  of  this  state,  the  excep- 
tion cannot  be  applied  to  an  attachment  here. 

The  only  cases  in  this  country  in  which  it  is  claimed  a  contrary 
doctrine  is  held,  and  to  which  we  have  been  referred,  are  the  cases  of 
McCarty  v.  Emlen,  2  Dall.  (Pa.)  277,  1  L.  Ed.  380,  Knox  v.  Schep- 


276  REMEDIES  OF    CREDITORS 


ler,  2  Hill  (S.  C.)  595,  and  Wallace  v.  Patterson,  2  Har.  &  McH. 
(Md.)  463.«     *     *     ♦ 

So  satisfied  are  we,  upon  the  g-round  of  reason  and  expediency,  and 
tlie  great  weight  of  authority,  that  the  partnership  credits  of  a  con- 
tinuing partnership  should  not  be  subjected  to  the  process  of  attach- 
ment at  the  suit  of  a  separate  creditor  of  one  of  the  partners,  that  we 
cannot  adopt  the  case  of  Wallace  v.  Patterson  to  the  extent  which  is 
claimed  for  it. 

In  our  opinion,  then,  in  a  case  like  the  present,  where  the  partner- 
ship is  a  continuing  one,  and  where  there  has  been  no  adjustment  of 
partnership  affairs,  a  debt  due  the  partnership  cannot  be  taken  by 
garnishment  to  pay  the  individual  debt  of  one  of  the  members  of  the 
firm. 

This  judgment  will  therefore  be  reversed,  and  judgment  entered 
for  the  appellant. 


IV.  Remedies  in  Equity — Insolvency  or  Bankruptcy  of  Firm 


RODGERS  V.  TvIERANDA  et  al. ' 
(Supreme  Court  of  Ohio,  1857.    7  Ohio  St.  180.) 

The  original  proceeding  was  a  petition  for  an  order  of  distribution 
of  the  separate  or  individual  assets  of  an  insolvent  debtor,  as  be- 
tween separate  and  partnership  creditors. 

It  appears  from  the  record  that  about  the  13th  of  June,  1854,  Peter 
Murray,  an  insolvent  debtor,  made  an  assignment  of  all  his  estate, 
real  and  personal,  to  the  plaintiff,  in  trust  for  the  payment  of  his 
individual  creditors  in  proportion  to  the  amount  of  their  respective 
demands.     Though  possessed  of  a  large  and  valuable  estate,  it  had 

8  In  Stevens  v.  Perry,  113  Mass.  380  (1873),  in  holding  that  a  firm  creditor 
oiay,  by  trustee  or  garnishment  proceedings,  reach  the  goods  or  effects  of  a 
partner  in  the  hands  of  a  third  person,  the  court  said:  "It  is  well  settled  as 
matter  of  law  in  this  commonwealth  that,  in  a  suit  against  two  or  more  co- 
partners upon  their  joint  debt,  the  separate  property  of  any  one  of  the  part- 
ners may  be  attached,  and  the  lien  so  acquired  is  not  discharged  or  impaired 
by  a  subsequent  attachment  of  the  same  property  upon  a  suit  in  favor  of  a 
separate  creditor  of  the  same  partner.  Allen  v.  Wells,  22  Pick.  (Mass.)  450,  33 
Am.  Dec.  757 ;  Newman  v.  Bagley,  16  Pick.  (Mass.)  570.  The  Supreme  Court 
of  New  Hampshii-e  has  in  several  cases  held  otherwise.  Jarvis  v.  Brooks,  23 
N.  H.  136 ;  P.owker  v.  Smith,  48  N.  H.  Ill,  2  Am.  Rep.  189.  But  we  must  con- 
sider ourselves  bound  by  our  own  decisions.  As  the  debt  due  from  the  part- 
ners jointly  is  also  due  from  each,  it  may  be  enforced  against  the  separate 
property  of  each.  It  is  immaterial  whether  this  separate  property  is  in  the 
form  of  goods  and  movable  chattels,  or  goods,  effects,  and  credits  intrusted 
and  deposited  in  such  a  manner  that  they  can  only  be  attached  upon  a  trustee 
process.  It  is  not  necessary  that  the  principal  debtors  should  have  made  a 
joint  deposit,  or  that  the  fund  should  belong  to  them  jointly.  It  is  enough  if 
funds  attachal)le  upon  a  trustee  process  are  due  from  the  alleged  trustee  to 
either  one  of  the  principal  defendants." 

e  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  143-148. 


HEMEDIE8  IN  EQUITY — INSOLVENCY  OR  BANKRUPTCY  OF  FIRM         277 

been  found  insufficient  to  pay  his  separate  debts  and  liabilities  in  full. 
At  the  date  of  his  failure  and  assignment  he  was  a  partner  with  John 
W.  Dever  in  a  mercantile  firm  under  the  name  and  style  of  Dever  & 
Murray;  which  firm  had  also  become  insolvent,  and  likewise  Dever; 
and  the  firm  had  made  an  assignment  of  the  partnership  property  and 
assets  about  the  same  time  to  John  Meranda,  one  of  the  defendants, 
in  trust  for  the  payment  of  the  joint  debts  or  liabilities  of  the  firm. 

In  this  condition  of  affairs  the  partnership  creditors,  although  they 
have  filed  their  claims  with  the  assignee  of  the  firm  for  their  distribu- 
tive shares  out  of  the  partnership  property,  claim  the  right  to  be  ad- 
mitted to  a  participation  in  the  dividends  of  the  separate  estate  of 
Murray,  pari  passu  with  his  individual  creditors;  while  the  latter 
deny  the  right,  and  insist  that  his  separate  estate  shall  be  applied  to 
the  satisfaction  of  his  individual  debts  in  preference  to  his  partnership 
debts. 

It  appears,  further,  that  Murray,  besides  advancing  his  part  of  the 
capital  of  the  firm,  also  loaned  money  to  the  firm  to  a  large  amount, 
for  which  he  held  the  obligations  of  the  firm,  which  obligations,  by 
the  assignment  of  Murray,  came  into  the  hands  of  the  plaintiff,  who 
has  presented  the  same  to  the  assignee  of  the  firm,  and  claims  to 
have  the  same  paid  out  of  the  assets  of  the  firm,  pari  passu  with  the 
other  partnership  debts.  The  other  creditors  resist  this,  and  plaintiff 
asks  an  order  of  distribution  to  that  effect  out  of  partnership  assets. 

Defendants  demurred  to  the  petition.  The  court  below  sustained 
the  demurrer,  and  gave  judgment  in  favor  of  the  defendants;  and 
this  petition  in  error  is  filed  to  review  and  reverse  that  judgment. 

Hartley,  C.  J.^°  Two  questions  are  presented  for  determination  in 
this  case.  The  first  is  whether,  in  the  distribution  of  the  assets  of 
insolvent  partners,  where  there  are  both  individual  and  partnership 
assets,  the  individual  creditors  of  a  partner  are  entitled  to  be  first 
paid  out  of  the  individual  effects  of  their  debtor,  before  the  partner- 
ship creditors  are  entitled  to  any  distribution  therefrom.  It  is  well 
settled  that,  in  the  distribution  of  the  assets  of  insolvent  partners,  the 
partnership  creditors  are  entitled  to  a  priority  in  the  partnership  ef- 
fects, so  that  the  partnership  debts  must  be  settled  before  any  division 
of  the  partnership  funds  can  be  made  among  the  individual  creditors 
of  the  several  partners.  This  is  incident  to  the  nature  of  partnership 
property.  It  is  the  right  of  a  partner  to  have  the  partnership  property 
applied  to  the  purposes  of  the  firm,  and  the  separate  interest  of  each 
partner  in  the  partnership  property  is  his  share  of  the  surplus  after 
the  payment  of  the  partnership  debts.  And  this  rule,  which  gives  the 
partnership  creditors  a  preference  in  the  partnership  effects,  would 
seem  to  produce,  in  equity,  a  corresponding  and  a  correlative  rule, 
giving  a  preference  to  the  individual  creditors  of  a  partner  in  his 
separate  property;    so  that  partnership  creditors  can,  in  equity,  only 

»o  Part  of  tlie  opiuion  is  omitted. 


278  REMEDIES  OF    CREDITORS 

look  to  the  surplus  of  the  separate  property  of  a  partner,  after  the 
payment  of  his  individual  debts,  and,  on  the  other  hand,  the  individual 
creditors  of  a  partner  can  in  like  manner  only  claim  distribution  from 
the  debtor's  interest  in  the  surplus  of  the  joint  fund  after  the  satis- 
faction of  the  partnership  creditors.  The  correctness  of  this  rule, 
however,  has  been  much  controverted ;  and  there  has  not  been  always 
a  perfect  concurrence  in  the  reasons  assigned  for  it  by  those  courts 
which  have  adhered  to  it.     *     *     * 

The  remaining  matter  for  determination  in  this  case  involves  the 
inquiry  whether,  in  case  of  an  indebtedness  for  money  lent  to  the  part- 
nership by  a  partner  who  afterward  becomes  insolvent,  the  separate 
creditors  of  the  latter  shall  be  entitled  therefor  to  a  pro  rata  dis- 
tribution with  the  partnership  creditors  out  of  the  joint  fund.  It  is 
claimed  that  the  liability  of  the  firm  to  a  partner  for  money  loaned  is 
a  partnership  debt,  and  that  the  individual  creditors  of  that  partner  are, 
in  equity,  entitled  to  an  equal  distribution  therefor  out  of  the  part- 
nership property.  On  the  other  hand,  it  is  claimed  that  as  each  part- 
ner is  individually  liable  for  the  debts  of  the  firm,  and  as  no  partner 
can  be  allowed  to  participate  with  his  own  creditors  in  the  distribution 
of  a  fund,  the  separate  creditors  of  a  partner,  as  they  can  only  claim 
through  the  rights  of  their  debtor,  cannot  be  allowed  such  participa- 
tion with  the  joint  creditors.     *     *     * 

The  separate  creditors  of  Murray,  therefore,  are  not,  on  account  of 
this  claim  for  money  lent  by  Murray  to  the  firm,  entitled  to  partici- 
pate with  the  partnership  creditors  in  the  distribution  of  the  joint 
effects. 

Judgment  of  the  common  pleas  reversed,  and  ordered  that  the  sepa- 
rate effects  of  Peter  Murray  be  distributed  pro  rata,  first  among  his 
individual  creditors,  before  any  application  thereof  be  made  to  the 
payment  of  the  partnership  debts  of  Dever  &  Murray,  and  that  the 
partnership  effects  be  applied  first  to  the  payment  of  the  partnership 
debts,  irrespective  of  the  claim  of  the  partner,  Peter  Murray,  of  money 
loaned  by  him  to  the  firm. 


DAVIS  V.  HOWELU 

(Court  of  Chancery  of  New  Jersey,  1880,    33  N.  J.  Eq.  72.) 

RuNYON,  Ch.'^  John  C.  Bennett  and  James  M.  Andrews  were,  on 
or  about  the  10th  of  February,  1876,  partners  in  business  in  Phillips- 
burg.  On  that  day  they  made  an  assignment  under  the  assignment 
act,  for  the  equal  benefit  of  their  creditors,  to  the  complainant,  Wil- 
liam M.  Davis.  Five  days  after  the  making  of  that  assignment  An- 
drews made  an  assignment  under  the  act  for  the  equal  benefit  of  his 
creditors  to  the  complainant  and  Joseph  Howell,  and  about  the  same 
time  Bennett  made  a  like  assignment  to  Sylvester  A.  Comstock  and 

11  Part  of  the  opinion  is  omitted. 


REMEDIES  IN  EQUITY — INSOLVENCY  OR  BANKRUPTCY  OF  FIRM         279 

Charles  F.  Fitch.  The  partnership  estate  will  pay  a  dividend  of  only 
about  11  per  cent,  of  the  partnership  debts.  Most  of  the  partnership 
creditors  have  put  in  their  claims  under  the  assignment  of  Andrews, 
and  claim  and  insist  upon  a  proportionate  participation  with  his  in- 
dividual creditors  therein  as  to  so  much  of  their  claims  as  may  not 
be  paid  out  of  the  partnership  estate,  and  they  threaten  the  complain- 
ant and  his  co-assignee  of  Andrews'  estate  with  legal  proceedings  if 
their  demand  be  not  complied  with.  The  complainant,  therefore,  comes 
into  this  court  for  protection  and  instruction  as  to  his  duty  in  the 
premises.  His  co-assignee,  Howell,  is  a  creditor  of  Andrews'  estate, 
and  he  is  made  a  defendant.     *     *     * 

There  will  be  a  decree  that  the  joint  assets  be  first  applied  to  the 
payment  of  the  joint  debts,  and  the  separate  assets  to  the  separate 
debts,  and  that  the  joint  creditors  may  participate  in  any  surplus  of 
the  separate  assets,  which  may  remain  after  payment  of  the  separate 
debts.  The  costs  of  the  parties  will  be  paid  out  of  the  funds  repre- 
sented by  the  complainant — the  partnership  estate — and  Andrews'  es- 
tate in  equal  shares. 


THAYER   V.    HUMPHREY. 

DAVIES    V.    SAME. 

(Supreme  Court  of  Wisconsin,  1895.    91  Wis.  276.  64  N.  W.  1007,  30  L.  R.  A. 
549,  51  Am.  St.  Rep.  887.) 

J.  D.  Putnam  and  Alfred  G.  Goss  were  partners  in  the  milling  busi- 
ness under  the  name  of  J.  D.  Putnam  &  Co.  The  partnership  was 
dissolved  by  mutual  consent;  the  business  being  thenceforward  car- 
ried on  by  J.  B.  Goss  alone  at  the  same  place  under  the  name  of  J.  B. 
Goss  &  Co.,  who  assumed  all  the  debts  of  J.  D.  Putnam  &  Co.  The 
firm  property  of  J.  D.  Putnam  &  Co.  was  conveyed  to  J.  B.  Goss. 
Lottie  Thayer  was  a  creditor  for  money  lent  to  J.  D.  Putnam  &  Co. 
After  the  dissolution  she  took  the  note  of  J.  B.  Goss  &  Co.  for  her 
claim  against  J.  D.  Putnam  &  Co.  She  afterwards  recovered  judg- 
ment on  this  note  against  J.  B.  Goss  and  Alfred  J.  Goss,  in  form 
joint  and  several.  The  trial  court  found  that  Alfred  J.  Goss  was  not 
a  partner  with  J.  B.  Goss  in  the  firm  of  J.  B.  Goss  &  Co.,  but  that  he 
was  liable  to  Thayer  by  reason  of  his  being  held  out  to  her  as  a  part- 
ner. Alfred  J.  Goss,  being  insolvent,  made  an  assignment  for  the  bene- 
fit of  his  creditors  to  Humphrey.  J.  B.  Goss,  likewise,  being  in- 
solvent, assigned  to  one  Weld  all  his  property,  including  the  remaining 
assets  of  J.  D.  Putnam  &  Co.  J.  D.  Putnam  was  also  insolvent.  Thay- 
er filed  her  claim,  based  on  her  judgjnent,  with  Humphrey,  seeking 
to  participate  pari  passu  with  the  individual  creditors  of  A,  J.  Goss 
in  the  distribution  of  his  separate  assets. 

The  court  held  that  she  must  first  go  against  the  partnership  assets, 
and  could  not  go  against  the  individual  assets  of  A.  J.  Goss  until  his 
separate  creditors  were  paid.     From  this  order  Thayer  appealed. 


280  REMEDIES   OF    CREDITORS 

Davies  was  also  a  creditor  of  J.  D,  Putnam  &  Co.,  but  did  not  ac- 
cept J.  B.  Goss  &  Co.  as  a  substitute  for  his  original  debtor.  He  is 
not  a  creditor  of  either  J.  B.  Goss  or  J.  B.  Goss  &  Co.  He  also  filed 
his  claim  with  Humphrey,  seeking  to  participate  in  the  distribution  of 
the  separate  assets  of  A.  J.  Goss.  The  court  held  that  he  must  first 
go  against  the  assets  in  the  hands  of  the  assignee  of  J.  B.  Goss.  From 
this  order  Davies  appealed. 

Marshall,  J.^^  ♦  *  *  Now,  in  this  situation,  can  the  creditors 
of  J.  B.  Goss,  doing  business  as  J.  B.  Goss  &  Co.,  who  are  so  circum- 
stanced as  to  be  entitled  to  hold  J.  B.  Goss  and  A.  J.  Goss  liable  as 
members  of  an  ostensible  firm — and  all  the  creditors,  at  least  of  the 
new  concern,  including  those  having  claims  against  the  old  firm  that, 
by  arrangement  with  them,  have  been  assumed  and  made  debts  of 
J.  B.  Goss  &  Co.,  are  so  circumstanced  in  fact — prove  their  claims 
pari  passu  with  the  individual  creditors  of  A.  J.  Goss  in  his  assign- 
ment? Also,  can  the  creditors  of  the  firm  of  J.  D.  Putnam  &  Co.  so 
prove?    *     *    * 

There  are  several  propositions  of  law  that  apply  which  are  well  es- 
tablished—too well  to  need  to  be  more  than  stated— among  which 
are  that  the  assets  of  an  insolvent  partnership,  in  insolvency  proceed- 
ings, must  be  applied  first  to  the  payment  of  the  partnership  debts; 
that,  generally  speaking,  partnership  creditors  cannot  prove  in  com- 
petition with  the  individual  creditors  of  a  partner ;  that  the  fixed  rule 
is  that  joint  estate  must  go  to  joint  creditors,  and  separate  estate  to 
separate  creditors,  though  the  former  may  prove  pari  passu  with 
separate  creditors,  when  there  is  no  living  solvent  partner  and  no 
partnership  assets.  Now,  in  this  case  there  is  no  solvent  partner.  J. 
D.  Putnam,  J.  B.  Goss,  and  A.  J.  Goss  are  all  insolvent.  So,  keep- 
mg  in  mind  the  above-stated  propositions  of  law,  the  vital  question  is: 
Are  there  any  partnership  assets  to  which  appellants  can  resort?  If 
there  are  such,  then  the  foundation  stone,  upon  which  they  construct 
their  claim  of  right  to  share  pari  passu  with  the  individual  creditors 
of  A.  J.  Goss,  disappears.     *     *     * 

The  reasoning  of  these  cases  is,  in  our  opinion,  unanswerable,  and 
we  deduce  therefrom  the  principle  of  law  that,  if  a  person  allows  an- 
other to  carry  on  business  in  such  a  way  as  to  amount  to  a  holding 
out  to  persons  generally  that  he  and  such  other  are  partners,  and  credit 
is  given  to  both  on  the  supposition  that  they  are  partners  in  fact,  the 
property  with  which  such  business  is  carried  on,  though  in  law  that 
of  such  person,  in  equity  will  be  treated  as  the  joint  property  of  such 
person  and  such  other;  and  neither  of  them,  nor  the  creditors  of  either, 
can  prove  up  in  insolvency  in  competition  with  the  creditors  who  have 
trusted  the  two  as  partners  and  the  business  as  that  of  the  two.  To 
the  same  effect  is  Van  Kleeck  v.  McCabe,  87  Mich.  599,  49  N.  W.  872, 

12  Part  of  the  opinion  and  the  dissenting  opinion  of  Newman,  J.,  are 
omitted. 


REMEDIES  IN  EQUITY INSOLVENCY  OR  BANKRUPTCY  OF  FIRM         281 

24  Am.  St.  Rep.  182.  Applying  the  law  thus  stated  to  the  question 
under  consideration,  the  conckision  is  easily  reached  that,  while  there 
are  no  firm  assets  at  law  of  the  ostensible  firm  of  J.  B.  Goss  &  Co.,  all 
the  property  used  by  J.  B.  Goss  in  conducting  the  business,  in  equity, 
is  the  joint  property  of  such  ostensible  firm,  and  to  it  all  the  creditors 
of  such  ostensible  firm  can  resort,  the  same  in  all  respects  as  if  there 
had  been  a  firm  in  fact. 

This  effectually  disposes  of  the  appeal  of  appellant  Lottie  Thayer, 
though  it  is  as  effectually  ruled  by  the  law  applicable  to  the  Davies 
appeal,  as  will  appear  by  what  follows.  Appellant  Davies  never  be- 
came a  creditor  of  J.  B.  Goss  or  of  J.  B.  Goss  &  Co.,  by  any  agreement 
to  which  he  was  a  party;  and,  while  his  appeal  presents  the  question 
of  whether  there  is  any  joint  property  to  which  he  can  resort,  such 
question  involves  a  different  question  from  the  one  discussed  as  par- 
ticularly applicable  to  the  Thayer  appeal. 

We  must  start  the  discussion  of  the  Davies  appeal  with  the  prop- 
ositions of  law — in  respect  to  which  though,  there  is  some  conflict,  they 
are  too  well  established  by  the  great  weight  of  authority  to  be  ques- 
tioned by  this  court — that  partnership  creditors  have  no  lien  on  the 
partnership  assets  independent  of  the  equity  of  the  partners,  but  must 
work  out  their  preference  over  the  individual  creditors  of  the  mem- 
bers of  the  partnership  through  the  equities  of  such  members;  that, 
so  long  as  the  equity  of  the  individual  members  of  the  partnership 
exists  to  have  the  partnership  property  applied  to  the  partnership 
debts,  the  creditors  have  the  equity  to  compel  its  enforcement;  that  if 
one  member  sells  his  interest,  bona  fide,  to  his  copartner  or  a  stran- 
ger, without  in  any  way  retaining  his  equity  to  have  the  partnership 
creditors  paid  out  of  it,  the  joint  property  is  thereby  converted  into 
the  individual  property  of  the  purchaser.  The  question  to  be  determin- 
ed is,  in  view  of  the  facts  that  the  sale  was  made  by  Putnam  in  con- 
sideration of  the  debts  of  the  partnership  being  paid;  that  the  firm 
was  insolvent  at  the  time ;  that  the  whole  transaction  was  really  made 
by  him  to  relieve  himself  from  the  partnership  liability ;  that  the  prop- 
erty was  put  into  the  possession  of  J.  B.  Goss  for  the  purpose  of  con- 
tinuing the  same  business  with  the  same  assets,  and  effect  a  settlement 
of  the  old  partnership  affairs— all  of  which  clearly  appears,  can  it  be 
held  that  the  equitable  title  to  the  property  was  changed,  so  as  to  af- 
fect the  equitable  right  of  Putnam  to  have  the  creditors  of  the  old  firm 
paid  out  of  it,  or  were  the  equitable  rights  of  the  outgoing  partner  and 
the  creditors  preserved  by  reason  of  the  facts,  and  the  assets  in  the 
hands  of  J.  B.  Goss  impressed  with  a  trust  to  carry  out  the  intention 
of  the  parties?     *     *     * 

[After  stating  that  the  two  sets  of  creditors — those  of  J.  D.  Putnam 
&  Co.  and  of  J.  B.  Goss  &  Co. — can  all  prove  in  the  insolvency  proceed- 
ings of  J.  B.  Goss,  the  opinion  concludes:] 

This  effectually  disposes  of  all  the  questions  presented,  and  leads  to 
the  conclusion  that  neither  of  the  appellants  can  prove  pari  passu  with 


282  REMEDIES  OF   CREDITORS 

the  individual  creditors  of  A.  J.  Goss  in  his  assignment,  but  they  can 
both  prove  pari  passu  with  all  the  creditors  of  the  ostensible  firm  of 
J.  B.  Goss  &.  Co.  in  the  assignment  of  J.  B.  Goss.     *     ♦     * 


BROADWAY  NAT.  BANK  v.  WOOD  et  al. 
(Supreme  Judicial  Court  of  Massachusetts,  1S96.    165  Mass.  312,  43  N.  E.  100.) 

Bill  by  the  Broadway  National  Bank  against  James  A.  Wood  and 
others  to  restrain  the  disposition  of  property,  and  to  apply  so  much 
thereof  as  may  be  necessary  to  the  payment  of  plaintiff's  claim,  evi- 
denced by  a  note  made  by  the  ostensible  firm  of  Harry  F.  Faden  & 
Co.  From  a  decree  sustaining  a  demurrer  and  dismissing  the  bill, 
plaintiff  appeals. ^^ 

Allen,  J.  On  the  averments  of  the  bill  it  must  be  assumed  that 
Faden  was  an  ostensible,  but  not  an  actual,  partner,  and)  that  the  prop- 
erty which  the  plaintiff  seeks  to  reach  and  apply  to  the  payment  of  its 
debt  was  in  fact  owned  by  the  two  Leatherbees.  Assuming  that  Faden 
was  and  is  personally  liable  to  the  plaintiff,  as  ostensible  partner,  on 
the  ground  of  estoppel,  it  is  contended  that  this  has  the  effect  to  entitle 
the  plaintiff,  as  a  creditor  of  the  ostensible  firm,  to  have  the  property 
which  was  in  the  possession  and  use  of  that  firm  applied  to  the  satis- 
faction of  the  creditors  of  that  ostensible  firm  in  priority  to  creditors 
whose  claims  are  only  against  the  two  Leatherbees.  There  are  some 
decisions  which  support  or  favor  this  view.  Kelly  v.  Scott,  49  N. 
Y.  595 ;  Hillman  v.  Moore,  3  Tenn.  Ch.  454 ;  Whitworth  v.  Patter- 
son, 6  Lea  (Tenn.)  119.  But  the  weight  of  authority,  and  the  better 
reason,  as  we  think,  are  the  other  way.  The  estoppel  is  a  personal 
one.  An  ostensible  partner  cannot  be  included  in  insolvency  proceed- 
ings instituted  by  the  actual  partners.  Hanson  v.  Paige,  3  Gray  (Mass.) 
239.  He  cannot  interfere  in  the  management  of  the  partnership  busi- 
ness, and  obtain  an  injunction  or  a  receiver.  Nutting  v.  Colt,  7  N. 
J.  Eq.  539 ;  Kerr  v.  Potter,  6  Gill  (Md.)  404.  He  has  no  lien  on  the 
partnership  assets.  Stone  v.  Manning,  2  Scam.  (111.)  530,  35  Am.  Dec. 
119. 

The  long-established  equity  of  joint  creditors  to  be  paid  in  priority 
out  of  the  joint  funds  is  usually  said  to  be  by  way  of  substitution  to 
the  rights  of  the  partners  inter  sese,  and,  where  no  such  right  exists, 
then  the  creditors  have  no  such  equity.  This  doctrine  is  so  firmly  es- 
tablished that  it  is  too  late  now  to  question  it.  Story,  Eq.  Jur.  ■§§  675, 
1253 ;  Howe  v.  Lawrence,  9  Cush.  (Mass.)  553,  558,  559,  57  Am.  Dec. 
68;  Harmon  v.  Clark,  13  Gray  (Mass.),  114,  121 ;  Robb  v.  Mudge,  14 
Gray  (Mass.)  534,  539;  Case  v.  Beauregard,  99  U.  S.  119,  125,  25 
L.  Ed.  370;  Fitzpatrick  v.  Flannagan,  106  U.  S.  648,  654,  1  Sup.  Ct. 
369,  27  L.  Ed.  211;    Huiskamp  v.  Wagon  Co.,  121  U.  S.  310,  323. 

13  Part  of  statement  of  facts  is  omitted. 


EIGHTS   OF   SECURED   CREDITORS  283 

7  Sup.  Ct.  899,  30  L.  Ed.  971 ;  Saunders  v.  Reilly,  105  N.  Y.  12,  19, 
20,  12  N.  E.  170,  59  Am.  Rep.  472;  Brown  v.  Beechcr,  120  Pa.  590. 
607,  608,  15  Atl.  608;  Washburn  v.  Bank,  19  Vt.  278;  Rice  v.  Barn- 
ard, 20  Vt.  479,  50  Am.  Dec.  54;  Couchman's  Adm'r  v.  Maupin,  78 
Ky.  33 ;  Farley  v.  Moo!:^,  79  Ala.  148,  58  Am.  Rep.  585 ;  Iron  Works 
V.  Davidson,  73  Cal.  389,  392,  15  Pac.  20;  Grabenheimer  v.  Rind- 
skoff,  64  Tex.  49.  It  has  also  been  held  in  England  that  when  trustees 
who  are  authorized  to  carry  on  business  contract  debts,  their  creditors 
can  only  resort  to  the  trust  fund  when  the  trustees  are  entitled  to  be 
indemnified  therefrom,  and  that  the  creditors  reach  it  only  by  being 
substituted  to  the  equities  of  the  trustees.  See  In  re  Johnson,  15  Ch. 
Div.  548,  and  Dowse  v.  Gorton,  40  Ch.  Div.  536,  cited  in  Mason  v. 
Pomeroy,  151  Mass.  164,  167,  24  N.  E.  202,  7  L.  R.  A.  771. 

In  applying  the  foregoing  doctrine  to  cases  where  a  person  is 
ostensibly,  but  not  actually,  a  member  of  a  partnership,  and  is,  there- 
fore, under  a  personal  estoppel  to  deny  his  liability,  it  follows  that  a 
creditor  who,  by  reason  of  this  estoppel,  can  maintain  a  personal  ac- 
tion against  him,  cannot  extend  this  estoppel  so  as  to  bind  the  prop- 
erty which  was  in  the  possession  and  use  of  the  actual  partners.  The 
ostensible  partner  himself  has  no  equity  to  have  this  property  applied 
to  the  payment  of  the  claims  upon  which  he  is  liable,  and  therefore 
the  creditors  holding  those  claims  who  are  merely  subrogated  to  his 
rights  and  equities  have  no  such  equity.  Kerr  v.  Potter,  6  Gill  (Md.) 
404;  Glenn  v.  Gill,  2  Md.  1 ;  Reese  v.  Bradford,  13  Ala.  846;  Scull's 
Appeal,  115  Pa.  141,  7  Atl.  588;  York  County  Bank's  Appeal,  32  Pa. 
446;    Swann  v.  Sanborn,  4  Woods,  625,  Fed.  Cas.  No.  13,675. 

The  result  is  that  the  decree  sustaining  the  demurrer  and  dismissing 
the  bill  was  right.    Decree  affirmed. 


V.  Rights  of  Secured  Creditors  ^* 


PEOPLE  V.  E.  REMINGTON  &  SONS. 
In  re  ILION  NAT.  BANK. 

(CJourt  of  Appeals  of  New  York,  1890.     121  N.  Y.  328,  24  N.  E.  793,  8  L.  R. 

A.  45S.) 

Gray,  J.^"^  The  only  question  presented  for  our  consideration  and 
determination  by  this  appeal  is  whether  the  creditor  of  this  insolvent 
corporation  was  entitled  to  prove  and  receive  a  dividend  upon  the  full 

i«  For  a  discussion  of  principles,  see  Gilniore  on  Partnership,  §  149. 
15  Part  of  tlie  opinion  and  the  statement  of  facts  are  omitted. 


284  REMEDIES  OF    CREDITORS 

amount  of  the  debt  due  from  the  insolvent  estate,  or  whether  the  re- 
ceivers, as  the  personal  representatives  of  the  insolvent,  could  reduce 
the  claim  of  the  creditor,  for  the  purposes  of  a  dividend,  by  compelling 
a  deduction  from  the  amount  of  the  proved  debt  of  the  value  of  col- 
lateral securities,  or  of  any  proceeds  thereof.  There  are  conflicting  de- 
cisions upon  this  question  in  the  courts  of  the  United  States ;  and  in 
England,  if  we  look  back  up  the  current  of  opinions,  we  may  find  some 
differences  in  views.  But  the  preponderance  of  authority  is  in  favor 
of  the  view  that  the  creditor  has  the  right  to  prove  and  have  dividends 
upon  his  entire  debt,  irrespective  of  the  collateral  security. 

In  this  state  the  precise  question  is  without  any  controlling  prece- 
dent. Two  cases  decided  by  the  special  term  of  the  supreme  court  are 
to  be  found  in  the  Reports  which  perhaps  bear  upon  the  question. 
They  arose  under  general  assignments  for  the  benefit  of  creditors, 
and  are  conflicting.  It  may  be  said,  therefore,  that  the  field  is  open  to 
us  for  review  and  determination.  I  think  we  must  conclude  that  the 
view  which  I  have  mentioned  as  having  the  weight  of  authority  in  its 
favor  is  the  one  best  according  with  the  principles  and  established  rules 
of  equity  jurisprudence,  to  which  department  of  legal  science  the  ques- 
tion pertains.  Some  confusion  of  thought  seems  to  be  worked)  by 
the  reference  of  the  decision  of  the  question  to  the  rules  of  law  gov- 
erning the  administration  of  estates  in  bankruptcy,  but  there  is  no  war- 
rant for  any  such  reference.  The  rules  in  bankruptcy  cases  proceed 
from  the  express  provisions  of  the  statute,  and  they  are  not  at  all  con- 
trolling upon  a  court  administering  in  equity  upon  the  estates  of  in- 
solvent debtors.  The  bankrupt  act  requires  the  creditor  to  give  up 
his  security  in  order  to  be  entitled  to  his  whole  debt;  or,  if  he  re- 
tains it,  he  can  only  prove  for  the  balance  of  the  debt  after  deducting 
the  value  of  the  security  held  The  jurisdiction  in  bankruptcy  is  pe- 
culiar and  special,  and  a  particular  mode  of  administration  is  prescrib- 
ed by  the  act.  To  administer,  in  cases  of  insolvency  coming  within 
the  jurisdiction  of  courts  of  equity,  by  analogy  with  the  modes  of 
bankruptcy  courts,  is  not  required ;  and  their  precedents  are  not  to 
be  deemed  as  causing  any  change  in  the  rules  established!  by  courts 
of  equity  for  the  marshaling  and  distribution  of  assets. 

Suggestion  is  also  made  of  a  principle  of  equity  as  controlling  upon 
the  question.  It  is  that,  where  the  creditor  has  two  funds  of  his  debtor 
to  which  he  can  resort  for  payment,  and  another  creditor  has  a  lien 
on  one  fund  only,  equity  will  compel  a  resort  by  the  first  creditor  to 
that  fund  to  which  the  lien  of  the  other  does  not  extend.  But  that  is 
not  exactly  this  case ;  nor  is  the  principle,  if  it  were,  decisive.  The 
author  whose  statement  of  the  principle  is  quoted  from  has  limited  its 
application  to  such  cases  where  to  compel  the  first  creditor  to  resort  to 
the  one  fund  will  not  operate  to  his  prejudice,  or  trench  upon  his 
rights.  1  Story,  Eq.  Jur.  §  633.  Judge  Story  assigns  as  a  reason  for 
the  application  of  the  principle  that,  by  so  compelling  the  creditor  to 
satisfy  his  claim  out  of  one  of  the  funds,  no  injustice  is  done  to  him 


EIGHTS   OF   8ECDEED   CREDITORS 


285 


in  point  of  security  or  payment.  The  learned  author's  reason  nega- 
tives the  proposition  that  a  secured  creditor  shall  lose  or  forego  any 
advantage  which  he  may  have  by  reason  of  his  security,  and  through 
which  the  fullest  satisfaction  of  his  debt  can  be  obtained. 

In  Evertson  v.  Booth,  19  Johns.  486,  Spencer,  C.  J.,  held  with  refer- 
ence to  the  equitable  rule  invoked  by  the  appellants  here,  that  it  is  not 
to  be  enforced)  if  it  will  "in  the  least  impair  the  prior  creditor's  right 
to  raise  his  debt  out  of  both  funds,"  and  he  emphatically  remarked: 
"I  know  of  no  principle  of  equity  which  can  take  from  him  any  part 
of  his  security  until  he  is  completely  satisfied."  Where  could  any 
such  principle  have  its  origin?  The  agreement  between  the  debtor 
and  the  creditor  was  that  a  debt  should  be  paid.  That  debt  is  a  def- 
inite quantity,  and  nothing  less  than  its  full  amount  can  be  said  to  be 
the  debt.  It  is  not  altered  or  affected  in  its  amount  because  the  cred- 
itor may  hold  some  collateral  security.  That  is  not  a  factor  of  the 
debt,  but  merely  an  incident  to  the  debt.  The  very  force  and  mean- 
ing of  a  collateral  security  are  in  the  idea  of  a  guaranty  of  the  per- 
formance of  the  principal  agreement,  which  was  to  pay  the  debt.  The 
property  wliich  a  creditor  holds  as  collateral  to  the  indebtedness  of 
his  debtor  secures  him  to  that  extent  in  case  his  debt  is  not  paid  in 
full  by  the  debtor  or  by  his  estate. 

As  between  the  creditor  and  his  debtor,  the  latter  could  not  compel 
the  former  to  resort  first  to  his  collaterals  before  asserting  his  claim 
by  a  personal  suit.  The  debtor  has  no  control  over  the  application  of 
the  collaterals.  It  is  the  general  rule  of  equity  that  the  creditor  is  not 
bound  to  apply  his  collateral  securities  before  enforcing  his  direct 
remedies  against  the  debtor.  1  Story,  Eq.  Jur.  §  640;  Lewis  v.  U.  S.. 
92  U.  S.  618,  23  L.  Ed.  513.  Then,  on  what  principle  can  we  hold 
that  because  the  debtor  becomes  insolvent  the  contract  with  his  cred- 
itor is  changed,  and  that  the  creditor  cannot,  under  those  circumstanc- 
es, enforce  his.  direct  claim  against  the  debtor  until  he  has  realized 
on  his  securities?  Is  the  rule  capable  of  such  inversion?  I  cannot 
see  any  reason  in  the  proposition.  I  do  not  see  why,  in  the  absence 
of  intervention  by  positive  or  statutory  law,  the  engagements  of  par- 
ties should  be  varied.  If  in  bankruptcy  another  method  was  prescribed 
by  the  statute  for  the  proof  and  payment  of  debts,  it  was  a  matter 
purely  within  the  discretion  of  the  federal  legislature.  Its  constitu- 
tional right  to  establish  uniform  laws  on  the  subject  of  bankruptcies 
throughout  the  United  States  obviously  included  the  power  to  prescribe 
the  mode  of  marshaling  the  insolvent's  assets  for  distribution  among 
creditors ;  and,  being  the  law  of  the  country,  it  becomes  a  part  of  ev- 
ery contract.  But  this  furnishes  no  reason  why  the  established  rules 
of  courts  of  equity  should  be  changed  in  the  administration  of  the  es- 
tates of  insolvents.     *     *     * 

But  I  think  that,  whether  we  look  at  this  question  in  the  light  of 
reason  or  of  the  adjudged  cases,  the  rule  which  best  commends  itself 
to  oar  judgment  is  that  which  leaves  the  contractual  relations  of  the 


286  REMEDIES  OF    CREDITORS 

debtor  and  his  creditors  unchanged  when  insolvency  has  brought  the 
general  estate  of  the  debtor  within  the  jurisdiction  of  a  court  of  equity 
for  administration  and  settlement.  The  creditor  is  entitled  to  prove 
against  the  estate  for  what  is  due  to  him,  and  to  receive  a  dividend 
upon  that  amount.  If  the  collateral  securities  are  more  than  sufficient 
to  satisfy  any  deficiency  in  the  payment  of  the  debt  from  the  dividends, 
the  personal  representatives  may  redeem  them  for  the  benefit  of  the 
estate. 

The  order  appealed  from  should  be  affirmed,  with  costs.  All  con- 
cur, (RuGER,  C.  J.,  in  result,)  except  Earl  and  O'Brien,  JJ.,  taking  no 
part 


VI.  Rights  of  Joint  and  Several  Creditors — Double  Proof  ^* 


HAWKINS  et  al.  v.  AIAHONEY  et  al. 
(Supreme  Court  of  Minnesota,  1898.    71  Minn.  155,  73  N.  W.  720.) 

Start,  C.  J.^^  Arthur  H.  Ives  and  Amos  P.  Ireland,  partners  un- 
der the  firm  name  of  Ives,  Ireland  &  Co.,  duly  made  an  assignment 
of  all  of  their  partnership  and  unexempt  individual  property,  for  the 
benefit  of  their  creditors,  under  the  insolvent  laws  of  this  state.  The 
net  assets  of  the  partnership,  for  distribution,  amount  to  $3,151.65, 
and  the  partnership  debts  are  $19,736.34.  Ireland's  net  individual 
assets  are  $4,000;  and  his  individual  debts,  $2,997.47.  Ives'  net 
assets  are  $100,  and  his  personal  debts,  $415.40.  Included  in  the  firm 
debts  proved  is  that  of  the  Irish-American  Bank,  for  $4,078.89,  which 
is  based  upon  the  notes  of  the  firm  given  to  the  bank  for  a  loan  by 
it  to  the  firm,  in  the  sum  of  $4,000,  and  signed  by  the  firm,  and 
by  Ireland  in  his  individual  name.  There  is  also  included  in  the 
firm  debts  that  of  the  St.  Anthony  Falls  Bank,  for  $5,512.50,  which 
is  based  upon  notes  executed  by  the  firm  to  it  for  a  loan  of  $5,500, 
but  none  of  the  notes  were  signed  by  either  of  the  individual  part- 
ners. Each  of  these  banks  made  the  loan  to  the  firm  in  express 
reliance  upon  the  individual  property  and  credit  of  Ireland.  The 
trial  court,  by  its  order  of  distribution,  directed  the  assignee  to 
pay  the  net  assets  of  the  firm,  pro  rata,  to  the  firm  creditors,  in- 
cluding the  Irish-American  Bank;  net  individual  assets  of  Ireland, 
pro  rata,  to  his  individual  creditors,  excluding  the  firm  creditors, 
except  the  Irish-American  Bank,  which  was  included  therein  to  the 
full  amount  of  its  debt,  without  any  deduction  for  the  payment 
thereon  it  was  to  receive  by  its  dividend  from  the  firm  assets ;  and 
the   net   assets   of   Ives   to   his    individual    creditors.      The   assignee 

16  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  1.50. 
J  7  Part  of   Uie  opinion   and   the   concurring  opinion   of   Mitchell,    J.,   are 
omitted. 


RIGHTS   OF   JOINT   AND   SEVERAL  CREDITORS — DOUBLE  PROOF         287 

and  certain  firm  creditors  appealed  from  tliis  order.  The  appeals 
present  two  general  questions  for  our  decision.  They  are,  did  the 
trial  court  err  (a)  in  distributing  the  firm  assets  to  tlie  firm  credit- 
ors, and  the  individual  assets  to  the  individual  creditors?  (b)  in  di- 
recting a  dividend  to  be  paid  to  the  Irish-American  Bank  from  both 
funds?     *     ♦     * 

2.  The  claim  of  the  Irish-American  Bank  was  based  upon  promis- 
sory notes  executed  by  the  firm  of  Ives,  Ireland  &  Co.,  and  by  Ire- 
land in  his  individual  name;  and  for  this  reason  the  trial  court  per- 
mitted the  bank  to  receive  a  dividend  on  the  full  amount  of  its  claim, 
from  both  the  partnership  and  individual  funds.  The  trial  court's 
order  in  this  respect  is  claimed  to  be  erroneous,  for  the  reason  that 
the  consideration  of  the  notes  determines  the  character  of  the  debt, 
which  was  for  money  loaned  to,  and  used  by,  the  firm;  hence  it  is 
immaterial  whether  or  not  the  individual  name  of  the  partner  is  on 
the  notes,  for  with  or  without  it  they  represent  a  partnership  debt, 
for  which  he  is  liable ;  consequently  the  bank  has  no  equities  superior 
to  the  other  firm  creditors.  The  question  of  double  proof  in  such 
a  case  is  not  a  new  one.  It  was  at  one  time  the  rule  in  England  that 
a  creditor  holding  a  note  signed  by  the  firm  and  an  individual  part- 
ner must,  in  bankruptcy,  elect  wliich  estate  he  would  prove  his  claim 
against.  The  rule  is,  and  always  has  been,  otherwise  in  this  country, 
and  it  is  settled  by  a  very  decided  weight  of  authority  that  such  double 
proof  is  permissible.  T.  Pars.  Partn.  p.  390;  2  Bates,  Partn.  §  841; 
17  Am.  &  Eng.  Enc.  Law,  1210;  Emery  v.  Bank,  7  Nat.  Bankr.  Rep. 
217,  Fed.  Cas.  No.  4,446;  In  re  Bradley,  2  Biss.  515,  Fed.  Cas.  No. 
1,772;  Ex  parte  Nason,  70  Me.  363;  Roger  Williams  Nat.  Bank 
V.  Hall,  160  ]\Iass.  171,  35  N.  E.  666.  It  is  true,  as  claimed,  that  the 
federal  bankrupt  law  provided  for  double  proof  in  certain  cases;  but 
Judge  Clifford,  in  Emery  v.  Bank,  clearly  indicates,  independent  of 
the  statute,  that  where  a  creditor  has  taken  the  precaution,  before 
parting  with  his  money,  to  secure  an  express  written  contract  for  its 
repayment  from  both  the  firm  and  the  individual  partner,  his  right  is 
clear,  in  case  of  bankruptcy,  to  the  benefit  of  his  caution,  and  to  prove 
his  claim  against,  and  receive  a  dividend  from,  the  fund  belonging  to 
the  partnership,  and  also  from  the  estate  of  the  individual  partner. 
This  precise  question  was  involved  in  the  cases  of  Ex  parte  Nason 
and  Bank  v.  Hall,  supra,  and  in  each  the  rule  as  to  double  proof  was 
maintained  on  principle.  In  the  last-named  case  the  court,  after 
citing  the  authorities  in  support  of  the  rule,  concludes  thus:  "In  view 
of  the  modern  decisions,  and  the  general  agreement  of  opinion,  we 
think  it  unnecessary  to  argue  elaborately  for  the  right  of  a  creditor 
who  has  required  two  contracts,  binding  two  distinct  estates,  to  in- 
sist upon  both."  Our  conclusion  on  this  question  is  that  the  Irish- 
American  Bank  was  entitled  to  receive  a  dividend  on  its  claim  from 
both  funds.  The  trial  court,  however,  directed  a  dividend  to  be  paid 
to  it  from  both  funds,  concurrently,  on  the  full  amount  of  its  debt. 


2S8  REMEDIES  OF    CREDITORS 

There  are  authorities  sustaining  tliis  part  of  the  order  but  it  is  mani- 
festly inequitable  to  other  creditors.  When  the  bank  receives  a  divi- 
dend' from  the  firm  assets,  the  primary  fund  for  the  payment  of  its 
claim,  its  debt  is  paid  pro  tanto;  and  to  permit  it  to  receive  a  divi- 
dend from  the  individual  assets,  on  the  part  of  its  debt  paid  from  the 
firm  assets,  to  the  prejudice  of  other  creditors,  is  not  just,  and  there- 
fore not  legal,  in  the  absence  of  any  statute  declaring  it  to  be  so. 
It  follows  that  the  order  appealed  from  must  be  modified  so  as  to 
permit  the  bank  to  receive  a  dividend  from  the  individual  assets  of 
Ireland  only  on  the  balance  of  its  claim  after  applying  as  a  payment 
its  dividend  from  the  firm  assets,  and  that  this  case  must  be  remanded, 
with  direction  to  the  district  court  to  so  do. 


VII.  Insolvency  or  Bankruptcy  of  a  Partner 


MURRAY  V.  MURRAY  et  al. 
(Court  of  Chancery  of  New  York,  1821.    5  Johns.  Ch.  60.) 

The  plaintiff,  John  V.  Murray,  and  Robert  Murray,  George  W.  Mur- 
ray, and  John  R.  Wheaton,  were  partners  under  the  firm  name  of 
Robert  Murray  &  Co.  The  partnership  failed  while  the  plaintiff  was 
in  England  on  firm  business.  George  W.  Murray  and  Wheaton  hav- 
ing gone  to  Europe,  leaving  Robert  Murray  the  only  partner  in  this 
country,  the  latter,  by  virtue  of  a  power  of  attorney  from  his  copart- 
ners, executed  several  assignments  of  the  firm  property  to  John  B. 
Murray  and  Clark  for  the  benefit  of  certain  creditors.  Afterwards 
all  the  members  of  the  partnership,  except  the  plaintiff,  were  declared 
bankrupt  under  the  United  States  bankruptcy  law  and  received  their 
discharge.  The  plaintiff,  having  returned  to  the  United  States  and 
never  having  been  adjudged  bankrupt  in  this  country,  filed  this  bill, 
charging  that  John  B.  Murray  and  Clark  had,  by  virtue  of  the  assign- 
ment to  them,  received  large  sums  of  money,  more  than  sufficient  to 
satisfy  the  debts  directed  to  be  paid,  and  that  they  had  in  their  hands  a 
large  balance  belonging  to  the  partnership,  which  plaintiff  prayed  might 
be  turned  over  to  him,  as  the  remaining  solvent  partner.  This  cause 
was  brought  to  a  hearing  for  the  purpose  of  obtaining  the  opinion  of 
the  court  whether  plaintiff  was  entitled  to  an  account  from  the  as- 
signees of  the  firm  and  to  the  payment  of  the  balance  in  their  hands. 
If  the  plaintiff  was  not  so  entitled,  the  bill  was  to  be  dismissed. 

Kent,  Ch.^*  The  question  in  this  case,  between  the  plaintiff  and  the 
assignees  of  his  bankrupt  partner,  relates  to  the  control  and  distribu- 
tion of  the  partnership  fund.     The  plaintiff,  in  a  particular  manner, 

18  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  151. 

18  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


INSOLVENCY   OR   BANKRUPTCY   OF   A    PARTNER  289 

claims  the  balance  reported  to  be  due  from  the  estate  of  John  I.  Clark, 
deceased,  to  the  house  of  Robert  Murray  &  Co.,  and  insists  that  he  is 
entitled,  in  preference  to  the  assignees,  to  distribute  that  balance,  and 
to  disregard  the  settlement  which  was  made  by  those  assignees  with 
the  executor  of  Clark.     ♦    *    * 

It  is  admitted,  in  all  the  cases,  that  the  assignees  of  a  bankrupt  part- 
ner and  the  remaining  solvent  partner  are  tenants  in  common  in  re- 
spect to  the  partnership  funds,  and,  like  all  tenants  in  common,  one 
party  cannot  call  the  joint  property  out  of  the  hands  of  the  other. 
There  is  no  such  case.  They  are  entitled  equally  to  the  possession  in 
law.  This  was  expressly  held  in  Smith  v.  Stokes,  1  East,  3G3.  Trover 
will  not  lie  for  one  against  the  other.  It  has  also  been  held  that  the 
solvent  partner  and  the  assignees  of  the  bankrupt  cannot  sue  alone, 
and  that  they  must  unite  in  actions  at  law.  Ashhurst,  J.,  in  Graham 
V.  Robertson,  2  Term,  •■iS'i ;  Eckluirdt  v.  Wilson,  8  Term,  140.  What 
right,  then,  has  the  solvent  partner  to  come  into  this  court,  to  call  the 
entire  joint  funds  out  of. the  possession  of  the  assignees,  who  are  his 
co-tenants  in  common,  and  as  such  have  an  equal  control  over  the 
joint  funds?  There  is  no  case  giving  to  either  party  the  absolute,  ex- 
clusive possession  and  distribution  of  the  entire  effects.  Neither  party 
is  strictly  entitled,  as  against  the  other,  to  anything  more  than  his  share 
of  the  surplus  after  the  partnership  debts  are  paid.  Field  v.  Taylor, 
4  Vesey,  39G. 

In  this  case  there  is  no  justice  or  equity  in  the  pretension  of  the 
plaintiff.  He  admits  that  the  partnership  debts  greatly  exceed  the 
partnership  funds,  and  that  there  cannot  be  any  surplus  coming  to 
either  party.  His  sole  object,  then,  is  to  have  the  partnership  funds, 
which  have  been  or  may  be  under  the  control  of  the  assignees,  pass 
into  his  hands  for  distribution,  instead  of  having  them  distributed  by 
the  assignees;  and  he  denies  all  right  in  the  assignees  to  touch  or 
distribute  any  of  the  partnership  funds  and  wishes  to  vacate  all  that 
they  have  done.  But  it  appears  that  a  great  majority  in  interest  of  the 
joint  creditors,  and  who  have  partnership  debts  due  them  to  nearly 
$500,000,  have  come  in  and  proved  their  debts  under  the  separate  com- 
mission in  the  case  of  Robert  Murray.  These  include  almost  all  the 
debts,  except  such  as  were  provided  for  under  the  assignments  to  J.  B. 
Murray  and  Clark.  It  also  appears  that  the  assignees,  after  having  by 
suit  obtained  a  liquidation  of  the  balance  due  from  the  estate  of  Clark, 
and  bestowed  great  care  and  efforts  towards  the  recovery  and  security 
of  that  debt,  settled  it  upon  terms  which  they  deemed  prudent  and 
just,  under  all  the  circumstances.  This  settlement  and  consequent  dis- 
charge of  the  estate  of  Clark  was  in  February,  1810;  and  in  October 
following,  due  public  notice  having  been  given  to  the  creditors,  several 
of  them  appeared  before  the  commissioners  of  bankrupts  and  ratified 
that  settlement.  If  there  was  anything  wrong  in  the  settlement,  it  was 
for  the  creditors  to  disturb  it;  and  it  would  be  most  unreasonable  to 
permit  the  plaintiff  to  sef  aside  all  that  had  been  done  by  the  assignee? 
Gilm.Part.— 19 


290  REMEDIES  OF    CREDITORS 

under  such  a  sanction  from  the  creditors,  merely  for  the  purpose  of 
making  his  own  distribution.  There  is  no  charge  of  misconduct  in 
the  assignees.  The  whole  bill  is  a  denial  of  their  competency  to  act, 
though  every  case  on  the  subject  admits  that  assignees  of  a  bankrupt 
partner  are  tenants  in  common  with  the  solvent  partner.  If  the  pre- 
tensions of  either  party  to  an  exclusive  distribution  of  the  f>artnership 
funds  were  to  be  examined  upon  principles  of  policy  and  equity,  the 
assignees  would  have  the  better  pretension,  in  the  view  of  this  court, 
because  the  solvent  partner  has  it  in  his  power  to  give  preferences  and 
defeat  the  equality  and  equity  of  the  bankrupt  system.  Assignees,  on 
the  other  hand,  are  bound  to  make  a  ratable  distribution  of  the  assets ; 
and,  being  trustees  under  the  control  of  th?s  court,  there  is  no  good 
reason  why  their  equal  rights  at  law  as  tenants  in  common  should 
suffer  diminution  here.  They  are  tenants  in  common,  but  with  par- 
ticular equities  in  them,  as  Lord  Eldon  observed,  "vastly  beyond  what 
tenants  in  common  have  where  no  bankruptcy  has  occurred";  and 
their  claim  to  the  distribution  of  the  partnership  fund  has  been  en- 
couraged and  strengthened  by  the  decisions  in  chancery.  This  will 
appear  by  a  review  of  some  of  the  leading  chancery  cases.    *    *    * 

Upon  this  review  of  the  cases  I  am  not  able  to  perceive  any  color- 
able reason  for  the  pretension  set  up  by  the  plaintiff  to  the  exclusive 
distribution  of  the  partnership  funds.  There  would  be  much  more 
ground,  upon  the  established  doctrines  of  equity,  for  an  exclusive  right 
of  distribution  on  the  part  of  the  assignees,  since  under  their  com- 
mission the  court  is  in  the  practice  of  directing  an  account  of  the  joint 
estate  to  be  taken  and  a  distribution  of  that  estate  ratably  among  the 
joint  creditors.  The  most  that  can  be  said  is  that  the  solvent  partner 
upon  the  dissolution  of  the  partnership  by  bankruptcy,  being  a  tenant 
in  common,  may  retain  and  distribute  the  funds  in  his  possession,  and 
may,  as  was  held  in  Fox  v.  Hanbury,  Cowp.  445,  sell  those  partnership 
eft'ects  for  a  valuable  consideration  and  without  fraud.  They  cannot 
be  called  out  of  his  possession  by  his  co-tenants,  the  assignees,  unless 
under  the  direction  of  this  court,  on  a  bill  filed  by  them  for  contribu- 
tion, or,  perhaps,  where  an  account  of  the  joint  fund  is  directed  to  be 
taken  in  bankruptcy.  But,  on  the  other  hand,  there  is  no  foundation 
in  law  or  equity  for  the  solvent  partner  to  call  to  account,  either  the 
partnership  debtors  who  have  bona  fide  settled  with  the  assignees,  or 
the  assignees  themselves,  for  the  funds  in  their  possession.  They  hold 
those  funds  by  an  equal  title  in  law  with  him  as  tenants  in  common, 
and  by  a  superior  equitable  title  as  trustees,  charged  with  the  payment 
of  both  the  joint  and  separate  debts. 

I  shall  accordingly  declare  that  the  plaintiff  has  no  right  or  title  in 
law  or  equity  to  call  the  assignees  to  account  for  the  partnership  funds, 
which  have  been  or  are  now  in  their  possession  as  such  assignees,  in 
order  to  obtain  by  decree  the  possession  of  those  funds  for  distribu- 
tion among  the  creditors  of  Robert  Murray  &  Co.,  inasmuch  as  those 
assignees  have  an  equal  right  and  title  in  law  as  tenants  in  common 


INSOLVENCY    OR   BANKRUPTCY    OF    A    PARTNER 


201 


with  the  plaintiff,  and  a  better  right  in  equity,  to  the  possession  of 
those  funds  for  the  same  purpose  of  distribution.  ♦  ♦  *  And  I  shall 
direct  the  original  bill,  and  bill  of  revivor  and  supplement,  to  be  dis- 
missed, but  without  costs,  considering  the  special  circumstances  of  the 
case,  and  the  importance  of  the  points  invciliiiatcd  and  discussed. 
Decree  accordingly. 


RUSSELL  et  al.  v.  COLE. 

(Supreme  Judicial  Court  of  Massachusetts,  1896.     167  Mass.  6,  44  N.  E,  1057, 

57  Am.  St.  Rep.  432.) 

Action  for  conversion,  brought  by  one  Russell  and  G.  W.  Martin 
against  Cole.  There  were  a  verdict  and  judgment  for  the  plaintiffs, 
and  defendant  excepts. 

Knowlton,  J.  The  conveyance  by  Martin  to  Russell  was,  on  the 
part  of  Martin,  fraudulent  as  against  creditors,  and  in  contravention 
of  the  statute  relating  to  insolvency.  But  Russell  had  no  knowledge 
of  this  fact,  and  did  not  in  any  way  participate  in  the  fraud.  The 
contract,  therefore,  took  effect  according  to  its  terms.  Russell  be- 
came a  co-partner  with  Martin,  and  the  goods  sold  became  partnership 
property.  The  rights  of  Russell,  who  bought  in  good  faith,  for  a  val- 
uable consideration,  were  not  in  any  way  affected  by  the  fraud  of 
Martin,  of  which  he  was  ignorant.  The  property  which  thus  became 
assets  of  the  partnership  under  the  contract  could  not  afterwards  be 
attached  on  a  debt  against  one  of  the  partners,  and  the  defendant,  as 
attaching  officer,  acquired  no  valid  title.  Sanborn  v.  Royce,  132  Mass. 
594;  Pelletier  v.  Couture,  148  Mass.  269-271,  19  N.  E.  400,  1  L.  R. 
A.  863. 

The  action  was  rightly  brought  in  the  name  of  both  members  of  the 
firm,  notwithstanding  the  proceedings  in  insolvency  against  Martin. 
Fish  v.  Gates,  133  Mass.  441;  Fay  v.  Duggan,  135  Mass.  242;  Hyde 
v.  Food  Co.,  160  Mass.  559,  36  N.  E.  585.  The  fact  that  Martin  was 
guilty  of  a  fraud  in  forming  the  partnership  before  the  attachment 
was  made  does  not  prevent  the  maintenance  of  the  action.  The  prin- 
ciple of  the  decision  in  Homer  v.  Wood,  11  Cush.  62,  is  not  to  be  ex- 
tended to  cases  like  the  present.  As,  according  to  the  finding  of  the 
auditor,  the  goods  became  partnership  property  even  as  to  creditors, 
notwithstanding  the  fraud  of  Martin,  the  suit  against  the  defendant 
for  attaching  it  wrongfully  does  not  involve  any  question  in  regard 
to  the  right  of  Martin  to  rescind  or  repudiate  the  contract,  nor  bring 
his  previous  conduct  within  the  issue.  The  defendant's  act  in  attach- 
ing the  partnership  property  was  a  trespass,  and  the  owners  of  the 
property  or  parties  in  possession  of  it  might  sue  for  damages  without 
regard  to  the  question  whether  one  of  them,  in  a  previous  transaction, 
had  been  guilty  of  a  wrong  against  third  parties.  Hall  v.  Corcoran, 
107  Mass.  251,  9  Am.  Rep.  30;    Ncwcomb  v.  Protective  Department, 


292  REMEDIES   OF    CREDITORS 

146  Mass.  596-602,  16  N.  E.  555,  4  Am.  St.  Rep.  354;    Stillings  v. 
Turner,  153  Mass.  534,  27  N.  E.  671. 

The  remaining  question  in  the  case  is  whether  the  defendant  is  en- 
titled to  show,  in  mitigation  of  damages,  that  he  delivered  the  property 
to  the  assignee  in  insolvency  of  Martin.  After  the  commencement  of 
the  proceedings  in  insolvency,  Russell  alone  had  a  right  to  the  pos- 
session of  the  property.  The  assignee  of  Martin  was  only  entitled  to 
a  share  in  the  surplus  of  the  partnership  assets,  if  anything  remained 
after  paying  the  debts.  The  partnership,  being  solvent,  through  the 
solvency  of  the  partner  Russell,  was  not  brought  into  the  court  of  in- 
solvency, and  that  court  acquired  no  jurisdiction  to  settle  its  affairs. 
It  is  to  be  remembered  that  our  courts  of  insolvency  are  creatures  of 
the  statute,  and  that  they  have  no  jurisdiction  except  that  which  the 
statute  gives  to  them.  Their  only  jurisdiction  over  partnerships  is 
conferred  by  Pub.  St.  c.  157,  §  120,  et  infra.  It  is  only  "when  two 
or  more  persons  who  are  partners  become  insolvent" — that  is,  when 
the  partnership  is  insolvent  through  the  insolvency  of  all  the  members 
of  the  firm — that  a  court  of  insolvency  acquires  jurisdiction  to  settle 
the  affairs  of  the  partnership ;  and  in  such  a  case  a  warrant  is  issued 
upon  which  the  joint  stock  and  property  of  the  firm  and  the  separate 
estate  of  each  of  the  partners  is  taken. 

Until  the  enactment  of  St.  1894,  c,  164,  courts  of  insolvency  had  no 
jurisdiction  in  equity,  and  that  statute  confers  no  jurisdiction  to  in- 
terfere in  the  affairs  of  a  partnership  which  is  not  brought  into  the 
court  of  insolvency  by  regular  proceedings  by  or  against  it,  except  in 
cases  where  incidentally  to  the  proceedings  in  insolvency  there  is  a 
ground  for  equitable  relief  under  the  principles  which  govern  other 
courts  of  equity. 

When  a- partnership  is  dissolved  by  the  death  or  insolvency  of  one 
of  its  members,  the  surviving  partners  in  case  of  death,  or  the  solvent 
partners  in  case  one  of  the  firm  is  in  insolvency,  are  entitled  to  the 
possession  of  the  partnership  property,  and  are  bound  to  pay  all  of 
the  firm's  debts.  It  is  their  duty  to  wind  up  the  affairs  of  the  partner- 
ship, and  to  pay  over  to  the  representative  of  the  deceased  or  insolvent 
partner  his  share  of  the  assets,  if  there  are  any  after  paying  the  firm's 
liabilities.  Hanson  v.  Paige,  3  Gray,  239-242 ;  Dearborn  v.  Keith,  5 
Cush.  224;  Fern  v.  Gushing,  4  Gush.  357;  Gunningham  v.  Munroe, 
15  Gray,  471-479;  Nutting  v.  Ashcroft,  101  Mass.  300;  Pelletier 
V.  Gouture,  148  Mass.  269,  271,  19  N.  E.  400;  Amsinck  v.  Bean,  22 
Wall.  395,  22  L.  Ed.  801 ;  2  Lindl.  Partn.  669  et  seq.  If  they  fail 
to  do  their  duty  in  these  particulars,  the  executor,  administrator,  or 
assignee  may  have  a  remedy  in  a  court  of  equity. 

So  long  as  the  solvent  partners  are  ready  and  willing  properly  to 
settle  the  business  and  dispose  of  the  property  of  the  partnership,  and 
properly  to  account  for  and  pay  over  the  proceeds,  an  assignee  in  in- 
solvency, under  our  statute,  has  no  right  to  the  possession  of  the  part- 
nership property.    The  partnership  property  and  the  solvent  members 


JRIGIITS    AGAINST   THE    ESTATE    OF    DECEASED   PARTNER  293 

of  the  firm  are  not  within  the  jurisdiction  of  the  court  of  insolvency. 
They  can  be  brought  within  its  jurisdiction  only  upon  proceedings  in 
equity,  under  St.  1894,  c.  164,  founded  upon  facts  which  would  give 
jurisdiction  to  a  court  of  general  jurisdiction  in  equity.  Some  of  the 
dicta  in  Wilkins  v.  Davis,  15  N.  B.  R.  60,  2  Low.  511,  Fed.  Cas.  No. 
17,664,  are  not  in  accordance  with  the  decisions  and  practice  under  the 
statutes  of  Massachusetts.  It  follows  that  the  surrender  of  the  prop- 
erty by  the  defendant  to  Martin's  assignee  in  insolvency  was  irregular 
and  unautiiorized.  It  cannot  avail  the  defendant  as  a  defense  in  this 
action,  by  way  of  mitigation  of  damages  or  otherwise. 

In  the  opinion  of  a  majority  of  the  court,  the  plaintiff  Russell  was 
entitled  to  have  from  the  defendant  all  of  the  property  taken  under 
the  attachment ;  and,  it  not  having  been  returned  to  him,  he  may  re- 
cover the  full  value  of  it.    Exceptions  overruled. 


VIII.  Rights  Against  the  Estate  of  Deceased  Partner  ''" 


STEWART'S  CASE. 

(Surrogate's  Court,  New  York  County,  1857.  4  Abb.  Prac.  408.) 
The  Surrogate.  The  testator  was  a  member  of  the  firm  of  J.  J, 
Stewart  &  Co.,  and  on  the  distribution  of  the  sale  of  his  real  estate  a 
question  arises  as  to  the  proper  mode  of  marshalling  the  assets  be- 
tween the  individual  and  the  partnership  creditors.  On  the  decease  of 
Stewart,  his  surviving  partners  settled  the  affairs  of  the  firm,  and  dis- 
tributed the  assets  among  the  partnership  creditors ;  but,  the  firm 
being  insolvent,  a  large  portion  of  the  joint  debts  remained  unpaid. 
The  surviving  partner  also  being  insolvent,  the  only  remedy  remaining 
to  the  partnership  creditors,  for  the  unpaid  balances  of  their  claims, 
is  against  the  estate  of  the  testator,  Stewart.  The  question  is,  whether 
the  partnership  creditors  can  come  in  and  share  ratably  with  the  sep- 
arate creditors  or  Stewart,  or  must  be  postponed  until  the  separate 
creditors  are  paid. 

It  is  well  settled,  both  at  law  and  in  equity,  that  the  separate  cred- 
itors of  a  partner  of  a  firm  can  reach  only  the  interest  of  their  debtor, 
or  his  proportion  of  the  surplus  of  the  joint  property  remaining  after 
payment  of  all  the  partnership  debts.  In  re  Smith,  16  Johns.  102; 
Moody  V.  Payne,  2  Johns.  Ch.  548.  But  in  regard  to  the  claims  of  the 
partnership  creditors,  there  is  a  distinction  between  the  legal  and  the 
equitable  rule.  At  law,  the  partnership  creditors  may  pursue  both  the 
joint  and  the  separate  estate  for  the  satisfaction  of  their  debts  which 
at  law  are  considered  both  joint  and  several.  On  the  death  of  one 
of  the  parties  the  legal  right  ceases  against  the  deceased  partner,  and 
survives  only  against  the  surviving  partner.     A  court  of  equity,  how- 

2  0  For  a  discussion  of  principles,  see  Gilinore  on  Partnership,  §  152. 


294  REMEDIES  OF    CREDITORS 

ever,  will  decree  to  joint  creditors  satisfaction  of  their  claims,  as 
against  the  representatives  of  the  deceased  partner,  when  by  reason 
of  the  insolvency  of  the  firm  and  of  the  surviving  partner,  no  other 
remedy  exists. 

Thus  far  the  rule  seems  plain.  But  what  are  the  rights  of  the 
joint  creditors  as  against  the  separate  creditors  of  the  deceased  part- 
ner, when  the  estate  of  the  latter  is  insufficient  to  pay  both  classes  of 
claims?  Have  the  individual  creditors  a  prior  right  to  the  individual 
estate,  and  are  they  entitled  to  be  paid  first,  in  preference  to  the  joint 
creditors?  The  legal  claim  of  the  joint  creditors  against  the  separate 
property  of  the  deceased  partner  is  terminable  by  his  death,  but  a 
remedy  will  be  afiforded  in  equity,  according  to  equitable  principles. 
The  general  doctrine  is  very  clearly  established  in  this  State,  that  joint 
creditors  shall  not  be  permitted  to  reach  the  individual  estate  of  the 
deceased  partner  until  all  the  separate  creditors  are  satisfied.  Murray 
V.  Murray,  5  Johns.  Ch.  60;  Robbins  v.  Cooper,  6  Johns.  Ch.  186; 
Wilder  v.  Keeler,  3  Paige,  167,  23  Am.  Dec.  781 ;  Egberts  v.  Wood,  3 
Paige,  517,  527,  24  Am.  Dec.  236;  Payne  v.  Matthews,  6  Paige,  20; 
Jackson  v.  Cornell,  1  Sandf.  Ch.  348;   Burtus  v.  Tisdall,  4  Barb.  571. 

The  only  exception  to  this  rule,  according  to  the  English  decisions, 
is  where  there  is  no  joint  estate  and  no  solvent  surviving  partner,  in 
which  case  the  joint  creditors  shall  not  be  postponed,  but  will  be  al- 
lowed to  come  in  ratably  with  the  individual  creditors.  Ex  parte  Hay- 
den,  1  Bro.  C.  C.  454;  Ex  parte  Abell,  4  Ves.  838;  Ex  parte  Pinker- 
ton,  6  Ves.  814,  note;  Ex  parte  Kensington,  14  Ves.  447;  Ex  parte 
Kendall,  17  Ves.  521.  But  this  exception  does  not  prevail  if  the 
joint  estate,  though  insolvent,  be  able  to  pay  a  dividend,  however  in- 
considerable. Gray  v.  Chiswell,  9  Ves.  124;  McCulloh  v.  Dashiell,  1 
Har.  &  G.  (Md.)  96,  18  Am.  Dec.  271 ;  Gow  on  Partn.  408.  If  there 
be  any  joint  estate  or  fund,  though  of  trifling  amount,  the  joint  debts 
are  attached  to  that,  and  cannot  receive  dividends  out  of  the  separate 
estate  pari  passu  with  the  separate  creditors.  It  is  not  easy  to  per- 
ceive the  ground  of  distinction  upon  which  this  modification  of  the 
exception  is  based. 

The  general  principle  is,  that  the  joint  creditors  are  attached  to  the 
joint  fund,  and  the  separate  creditors  to  the  separate  fund;  but  where 
there  is  no  joint  fund  and  no  solvent  surviving  partner,  so  that  the 
joint  creditor  is  without  remedy,  then  he  may  come  in  against  the 
separate  estate.  The  English  courts  of  equity  thus  recognized  both 
against  the  representatives  of  the  deceased  partner  and  his  individual 
creditors,  the  joint  and  several  character  of  the  partnership  debts, 
when  other  remedies  are  exhausted,  at  the  time  of  the  death  of  the 
deceased  partner.  The  fact  that  some  dividend  has  been  or  may  be 
received  from  the  joint  effects,  does  not  change  the  joint  and  several 
character  of  the  partnership  debts,  but  only  tends  to  effect  the  equitable 
marshalling  of  the  separate  assets.  After  the  receipts  of  the  dividend, 
there  remains  as  to  the  balance  due  no  remedy  against  the  separate 


EIGHTS   AGAINST   THE    ESTATE   OF   DECEASED  PAETNEB        29o 

estate,  which,  if  there  were  no  individual  creditors,  would  be  applied 
to  the  discharge  of  the  balance.  The  principle  upon  which  this  rule 
is  based  would  seem  to  be  satisfied  if  the  joint  creditors  bring  in  the 
dividend  received  from  the  joint  estate,  place  it  in  a  common  fund, 
out  of  wiiich  all  are  to  share  alike,  and  relinquish  the  advantage  of 
having  claims,  joint  as  well  as  several  in  their  nature. 

To  say  that  the  joint  creditor  may  resort  to  the  separate  estate, 
when  there  is  no  joint  fund  and  no  solvent  partner,  but  cannot  resort 
to  it  if  he  has  happened  to  realize  one  mill  on  the  dollar,  would  appear 
to  establish  a  distinction  more  technical  than  just.  If  the  dividend  is 
brought  in,  the  ground  of  the  distinction  ceases,  no  priority  or  ad- 
vantage is  gained,  and  all  the  demands  are  placed  upon  the  common 
ground  of  equality.  In  this  State,  however,  the  distinction  of  the 
English  courts  of  equity  on  this  subject  has  not  prevailed  in  regard  to 
the  general  rule.  In  Wilder  v.  Keeler,  3  Paige,  167,  the  chancellor 
held,  that  although  the  joint  creditors  upon  an  allegation  of  the  in- 
solvency of  the  surviving  partners  have  an  equitable  right  to  com- 
pel a  satisfaction  of  their  debts  out  of  the  estate  of  the  deceased  part- 
ner, this  equity  exists  only  against  the  heirs  and  representatives  of 
the  deceased,  but  not  against  his  separate  creditors ;  that  if  the  joint 
creditors  have  received  nothing  on  account  of  their  debts  since  the 
death  of  the  decedent,  the  equities  between  the  joint  and  separate  cred- 
itors may  be  equal ;  but  even  in  such  a  case  the  court  has  no  power  to 
deprive  the  separate  creditors  of  their  former  rights  and  legal  as- 
sets. The  same  principle  was  again  asserted  in  Egberts  v.  Wood,  3 
Paige,  517,  24  Am.  Dec.  236;  in  Payne  v.  Matthews,  6  Paige,  20,  29 
Am.  Dec.  738;  Kirby  v.  Schoonmaker,  3  Barb.  Ch.  46,  49  Am.  Dec. 
160. 

The  principle  that  equity  will  not  interfere  to  destroy  or  impair  the 
legal  preference  in  regard  to  legal  assets,  which  appertains  to  the  sep- 
arate creditors  at  law,  is  sound,  and  it  established  such  a  basis  of  dis- 
tinctions as  admits  of  a  clear  and  consistent  course  of  reasoning,  and 
prevents  any  confusion.  See  Trustees  v.  Lawrence,  11  Paige,  80; 
Jackson  v.  Cornell,  1  Sandf.  Ch.  348.  Whether,  therefore,  the  assets 
in  the  present  case  are  to  be  treated  strictly  as  legal  assets,  or  ought  to 
be  marshalled  according  to  equitable  principles,  the  joint  creditors 
cannot  be  permitted  to  have  their  debts  paid  out  of  the  separate  es- 
tate of  the  deceased  partner  until  all  the  separate  debts  are  paid.  If, 
after  such  payment  be  made,  any  surplus  remains,  then  it  may  be  ap- 
plied to  the  payment  of  the  partnership  creditors ;  and  in  that  case 
those  who  have  received  partial  payment  out  of  the  partnership  prop- 
erty must  bring  in  their  dividends,  and  share  ratably  with  those  who 
have  not  received  dividends,  or  else  be  excluded  until  the  latter  class 
of  partnership  creditors  have  received  a  sufficient  amount  to  place 
them  on  terms  of  equality  with  the  former.^^^ 

21  Read  iu  this  counectiou,  however,  Doggett  v.  Dill,  ante,  p.  1G9 ;    Voorhis 
V.  Child's  Ex'r,  ante,  p.  IGS. 


296  ACTIONS   BETWEEN   PARTNERS 

ACTIONS  BETWEEN  PARTNERS 
I.  Action  on  Partnership  Claim  or  Liability — At  Law  * 


SADLER  V.   NIXON. 

(Court  of  King's  Bench,  1834.    5  Barn.  &  Add.  936.) 

Assumpsit  for  money  paid  by  the  plaintiff  to  the  defendant's  use, 
etc.  At  the  trial  before  Denman,  C.  J.,  at  the  London  Sittings  after 
)ast  Michaelmas  Term,  the  following  appeared  to  be  the  facts  of  the 
case:  The  plaintiff,  the  defendant,  and  another  person,  being  co- 
partners in  trade,  employed  a  builder  to  repair  a  building  which  was 
their  joint  property  and  in  which  they  carried  on  their  trade.  The 
builder  brought  an  action  against  the  three  copartners  for  the  repairs, 
and  obtained  judgment,  but  took  the  plaintiff  only  in  execution,  who, 
in  order  to  regain  his  liberty,  paid  the  whole  debt.  The  present  ac- 
tion was  brought  to  recover  one-third  of  the  money  so  paid.  It  was 
contended  that  the  plaintiff,  one  of  the  three  joint  contractors,  having 
been  compelled  to  pay  money  which  his  co-contractors  were  jointly  li- 
able to  pay,  was  entitled  to  maintain  this  action.  On  the  other  hand,  it 
v.-as  said  that,  the  plaintiff  and  the  defendants  in  the  first  action  being 
not  merely  co-contractors,  but  copartners  in  trade,  one  of  them  could 
not  maintain  an  action  against  the  other  to  recover  money  paid  on  ac- 
count of  the  firm,  but  that  his  remedy  was  by  bill  in  equity;  the  rea- 
son why  an  action  at  law  in  such  a  case  was  not  maintainable  being  that 
it  would  be  useless  for  one  partner  to  recover  what,  upon  taking  a 
general  account  among  all  the  partners,  he  might  be  liable  to  refund, 
and  this  objection  applying  as  well  to  a  compulsory  as  to  a  voluntary 
payment.  The  Lord  Chief  Justice  was  of  that  opinion,  and  nonsuited 
the  plaintiff,  but  reserved  liberty  to  him  to  move  to  enter  a  verdict. 

F.  Pollock  on  a  former  day  in  this  term  moved  accordingly.  It 
may  be  conceded  that,  W'here  one  partner  voluntarily  makes  a  payment 
Dn  account  of  the  others,  he  cannot  maintain  an  action  at  law  against 
his  copartners;  but  it  is  otherwise  where  the  payment  is  by  compul- 
sion. *  *  *  The  principle  on  which  the  plaintiff  is  entitled  to  re- 
cover is  that  he  has  been  compelled  to  pay  out  of  his  own  funds  mon- 
ey which  the  defendant  was  jointly  liable  to  pay.^     *     ♦     ♦ 

Lord  Denman,  C.  J.,  now  delivered  judgment,  and  said  the  court 
were  of  opinion  that  there  was  no  ground  for  the  distinction  taken  on 
the  part  of  the  plaintiff,  and,  therefore,  there  would  be  no  rule. 

Rule  refused. 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  153-155. 

2  Statement  of  facts  is  abridged. 


ACTION    ON    PARTNERSHIP    CLAIM    OR   LIABILITY — AT   LAW         297 


BURT.EY  &  HARRIS  v.  HARRIS. 

(Superior  Court  of  Judicature  of  New  Hampshire,  1S40.    8  N.  H.  233,  29  Am. 

Dec.  650.) 

This  was  assumpsit  on  an  account  annexed  to  the  writ.  The  cause 
was  tried  on  the  general  issue,  and  a  brief  statement  was  filed,  alleging 
the  causes  of  defense  disclosed  in  this  case.  It  was  admitted  that 
Harris,  the  defendant,  was  a  partner  in  the  firm  of  Burley  &  Harris, 
in  whose  name  the  suit  was  brought.  The  defendant  had  received 
goods  belonging  to  the  firm  to  the  amount  of  $495.84,  for  which  he 
was  liable  to  account  to  the  firm ;  but  it  was  not  admitted  or  proved 
that  the  defendant,  on  a  full  adjustment  of  the  partnership  affairs, 
would  be  found  indebted  to  the  firm.  The  parties  offered  in  evidence 
the  original  articles  of  partnership  betwixt  them,  and  an  assignment 
of  the  partnership  demands  to  Burley,  with  an  agreement  that  Burley 
was  to  account  for  these  demands  in  payment  of  certain  .company  debts, 
and  in  payment  of  Harris's  portion  of  the  partnership  profits,  if  there 
should  be  any.  The  partnership  business  remains  unsettled  at  this 
time.  On  the  disclosure  of  these  facts  the  court  directed  a  nonsuit, 
subject  to  the  opinion  of  the  court;  and  it  was  agreed  by  the  parties 
that,  if  this  ruling  of  the  court  should  not  be  sustained,  the  nonsuit 
was  to  be  set  aside,  and  judgment  rendered  for  the  plaintiffs  for  the 
amount  of  the  account  annexed. 

Upiiam,  J.  The  authorities  are  very  clear  that  an  individual  can- 
not stand  in  the  relation  of  plaintiff  and  defendant  in  the  same  suit. 
A  judgment  in  such  case  would  avail  nothing,  as  the  defendant  would 
have  the  same  right  to  discharge  an  execution  founded  on  it  as  the 
plaintiff.  The  question  has  arisen  in  numerous  instances  where  an  in- 
dividual has  been  a  member  of  different  firms,  in  which  one  firm  held 
claims  against  the  other  and  attempted  to  enforce  them  at  law.  Judge 
Story,  in  his  treatise  on  Equity,  says  that  no  suit  can  be  maintained  at 
law  in  regard  to  any  actions  or  debts  between  two  firms,  where  in- 
dividuals of  the  firms  are  partners  in  each.  In  such  a  case,  all  the 
partners  must  join  and  be  joined;  and  no  person  can  maintain  a  suit 
against  himself,  or  against  himself  with  others.  The  objection  is  a 
complete  bar  to  the  action.  Nay,  even  after  the  death  of  the  partner 
or  partners  belonging  to  both  firms,  no  action  upon  any  contract,  or 
mutual  dealing  ex  contractu,  is  maintainable  by  the  survivors  of  one 
tirm  against  those  of  the  other  firm;  for  in  a  legal  view  there  never 
was  any  subsisting  contract  between  the  firms,  as  a  partner  cannot 
contract  with  himself.  1  Story's  Eq.  630 ;  Bosanquet  v.  Wray,  6 
Taunt.  597;  Mainwaring  v.  Newman,  2  Bos.  &  P.  120;  Jones  et  al. 
V.  Yates  et  al.,  9  Barn.  &  Cres.  532.  In  Eastman  v.  Wright,  6  Pick. 
(Mass.)  316,  and  ]\Iay  v.  Parker,  12  Pick.  (Mass.)  39,  22  Am.  Dec. 
393,  are  remarks  of  the  court  to  the  same  effect.  In  the  case  of  Holmes 
V.  Higgins,  1  Barn.  &  Cres.  68,  it  appeared  that  a  number  of  persons 
had  associated  themselves  together  and  subscribed  sums  of  money  for 
the  purpose  of  obtaining  a  bill  in  Parliament  to  make  a  railway.     It 


298  ACTIONS    BETWEEN  PARTNERS 

A-as  holden  that  they  were  partners,  and  that  a  subscriber  who  acted 
ds  a  surveyor  in  their  employ  could  not  maintain  an  action  against 
all  or  any  of  the  subscribers.  Chief  Justice  Abbot  held  that  the  sub- 
scribers were  partners,  and  that  it  was  perfectly  clear  that  one  partner 
could  not  maintain  an  action  against  his  copartners  for  work  and  labor 
performed,  or  money  expended,  on  account  of  the  copartnership. 

But  in  this  case  the  partnership  effects  have  been  assigned  to  one 
of  the  firm,  and  it  is  contended  that  the  assignment  should  be  protected 
and  the  holder  of  the  partnership  property  permitted  to  enforce  all 
:laims  in  the  partnership  name.  This  doctrine  is  correct.  In  many 
instances  of  dissolution  of  partnerships  the  remaining  partner  is,  by 
igreement,  exclusively  authorized  to  arrange  the  joint  affairs  and  to 
receive  the  partnership  credits  as  the  fund  out  of  which  to  discharge 
the  partnership  debts.  Where  this  is  the  case,  and  notice  as  well  of  the 
dissolution  as  of  the  private  arrangement  between  the  parties  is  given, 
a  debtor  to  the  firm  cannot,  by  colluding  with  the  outgoing  partner, 
obtain  from  him  a  discharge  of  the  debt.  Gow  on  Part.  275 ;  Hender- 
son V.  Wild,  2  Camp.  5G1 ;  Skaife  v.  Jackson,  3  Barn.  &  Cres.  421 ; 
Scott  V.  Trents,  1  Wash.  (Va.)  77;  Mountstephen  v.  Brooks,  1  Chit. 
390;  Arton  et  al.  v.  Booth,  4  Moore,  192.  The  claims  of  the  firm 
against  all  persons,  other  than  the  partners,  may  well  be  enforced 
under  such  an  arrangement.  But  until  a  final  adjustment  is  made  of 
the  balance  due  on  all  partnership  accounts,  or  at  least  until  some 
balance  is  struck,  and  a  specific  sum  is  found  due  to  some  one  part- 
ner, no  suit  can  be  enforced  by  one  member  of  a  firm  against  another. 
Gow  on  Part.  88;  Walker  v.  Long,  2  Browne  (Pa.)  125;  Ozeas  v. 
Johnson,  4  Dall.  (Pa.)  434,  1  h.  Ed.  897;  Murray  v.  Bogert  et  al, 
14  Johns.  (N.  Y.)  318,  7  Am.  Dec.  466;  Beach  v.  Hotchkiss,  2 
Conn.  425;  Bond  v.  Hays,  12  Mass.  34;  Wilby  v.  Phinney,  15  Mass. 
116;  Fanning  v.  Chadwick,  3  Pick.  (Mass.)  420,  15  Am.  Dec.  233; 
Brinley  v.  Kupfer,  6  Pick.  (Mass.)  179;  Foster  v.  Alanson,  2  D.  & 
E.  479. 

No  settlement  of  the  partnership  claims  has  been  made  in  this  case. 
The  assignment  to  Burley  is  in  fact  a  mere  power  of  attorney,  au- 
thorizing him  to  collect  the  partnership  demands  and  apply  them  in 
payment  of  the  partnership  debts,  while  he  was  to  hold  the  balance 
to  be  adjusted  by  the  partners.  The  partner  who  took  upon  himself 
the  business  of  collection  covenanted  to  account  for  all  the  property 
received,  to  pay  the  debts,  and  to  pay  the  defendant  his  share  of  the 
profits  upon  a  final  settlement,  if  the  firm  should  be  found  to  have  real- 
ized any  profits  for  division.  The  partnership  business  as  betwixt  the 
partners  was  left  entirely  unsettled,  and  in  case  of  any  difficulty  in 
the  settlement  betwixt  them  their  claims  were  to  be  submitted  to  the 
arbitration  of  individuals  designated  in  the  articles  of  dissolution. 
There  is  no  pretense,  then,  for  maintaining  this  suit,  on  the  ground  of 
any  adjusted  balance  made  betwixt  the  parties.  It  is  a  mere  naked 
suit  brought  by  a  firm  against  a  partner  for  an  indebtedness  to  the 
firm.     The  suit  is,  therefore,  felo  de  se.     The  parties  on  either  side 


ACTIONS   BETWEEN   FIRMS   WITH   COMMON   MEMBER  299 

upon  the  record  are  the  same.     Should  any  difficulties  arise   in  the 
final  settlement  of  the  concerns  of  these  partners,  there  is  a  plain  rem- 
edy in  equity,  where  the  ohjections  which  occur  here  would  not  exist. 
Suit  dismissed,  without  costs. 


II.  Actions  Between  Firms  With  Common  Member  • 


CROSBY  V.  TIMOLAT  et  al. 
(Supreme  Court  of  Minnesota,  1S92.    50  Minn.  171,  52  N.  W.  526.) 

Action  by  George  H.  Crosby,  as  receiver  of  the  partnership  prop- 
erty of  Miller  &  Timolat,  against  Harry  W.  Timolat  and  George  W. 
Stevens,  to  recover  for  services  rendered  by  Miller.  From  an  order 
overruling  defendant  Stevens'  demurrer  to  the  complaint  he  appeals. 

Dickinson,  J.  This  is  an  appeal  by  the  defendant  Stevens  alone 
from  an  order  overruling  his  demurrer  to  the  complaint.  It  appears 
that  Miller  and  Timolat  were  engaged  as  copartners  in  the  business 
of  buying  and  selling  real  estate.  At  the  same  time  Stevens  and  the 
same  Timolat  were  copartners  in  the  enterprise  of  buying,  holding, 
and  selling  certain  specified  tracts  of  land.  That  Miller  and  Timolat, 
as  such  copartners,  and  at  the  request  of  the  defendants,  Stevens  and 
Timolat,  as  copartners,  performed  services  in  selling  the  land  which 
was  the  subject  of  the  partnership  enterprise  of  the  latter.  After 
that,  in  an  action  prosecuted  by  jMiller  against  Timolat,  this  plaintiff 
was  appointed  receiver  of  the  partnership  property  of  the  firm  of  j\Iil- 
ler  &  Timolat,  with  power  to  sue  for  and  collect  all  debts  due  to  that 
partnership.  He  prosecutes  this  action  to  recover  the  value  of  such 
services  rendered  for  the  defendants.  The  appellant  relies  upon  the 
technical  rules  of  the  common  law.  It  is  true  that  an  action  at  law  for 
such  a  cause  as  that  stated  in  the  complaint  could  not  have  been 
maintained  by  a  partnership  against  another  partnership  having  a 
common  member  with  the  former  firm.  It  was  not  permitted  that 
one  of  the  parties  should  thus  appear  both  as  a  plaintiff'  and  defend- 
ant, in  effect  prosecuting  an  action  against  himself,  in  which,  if  a 
recovery  were  to  be  allowed,  it  would  be  in  his  favor,  and  at  the  same 
time  against  himself.  Nor,  at  law,  would  the  contract  or  agreement 
between  the  two  firms  having  a  common  member  be  recognized  as 
creating  a  legal  obligation  or  cause  of  action.  The  transaction  would 
be  treated  as  an  attempt  by  a  party  to  enter  into  a  contract  with  him- 
self. Bosanquet  v.  Wray,  6  Taunt.  597;  De  Tastet  v.  Shaw,  1  Barn. 
&   Aid.    CG-l,   G69;    Leake,   Cont.   439,   440;    McFadden   v.   Hunt,   5 

8  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  156. 


300  ACTIONS    BETWEEN  PARTNERS 

Watts  &  S.  (i'a.)  4G8;  Price  v.  Spencer,  7  Phila.  (Pa.)  179.  The 
remedial  system  of  the  common  law  was  too  inflexible  and  restricted 
to  enable  it  to  adjust  the  complex  rights  and  obligations  of  the  par- 
ties under  such  circumstances.  But  in  equity  the  agreements  of  the 
members  of  firms  so  related  to  each  other  were  treated  as  obligatory, 
and  the  fact  that  one  of  the  parties  to  the  joint  contract  stood  in  the 
position  of  both  an  obligor  and  obligee  did  not  stand  in  the  way  of 
affording  such  relief  or  remedy  as  might  be  found  to  be  appropriate 
and  necessary  to  the  ends  of  justice.  1  Story,  Eq.  Jur.  §§  679,  G80; 
Haven  v.  Wakefield,  39  111.  509 ;  Chapman  v.  Evans,  44  Miss.  113  ; 
Calvit's  Ex'rs  v.  IMarkham,  3  How.  (Miss.)  343;  Hayes  v.  Bement, 
3  Sandf.  (X.  Y.)  394.  With  the  statement  of  these  propositions  the 
objections  to  the  sufficiency  of  the  complaint  upon  the  grounds  stated 
in  the  demurrer  are  overcome.  There  is  a  cause  of  action  stated  of  an 
equitable  nature,  if  not  legal — and  if  it  is  either  the  demurrer  can- 
not be  sustained — and  the  plaintiff  has  legal  capacity  to  sue.  The 
very  objections  which  the  appellant  urges  to  the  sufficiency  of  the 
complaint  as  setting  forth  a  legal  cause  of  action  go  to  show  that  re- 
lief should  be  afforded  in  equity  at  least.  If  the  fact  that  Timolat 
is  one  of  the  obligors  in  the  contract  as  well  as  an  obligee  renders 
necessary  any  apportionment  of  the  amount  to  be  recovered,  or  any 
equitable  adjustment  of  the  rights  of  the  parties,  the  court  is  compe- 
tent to  do  what  is  necessary.  At  present  the  question  is  not  how  the 
matter  is  to  be  adjusted,  or  what  recovery  shall  be  allowed,  but  only 
as  to  whether  the  action  can  be  maintained  at  all.  As  bearing  upon 
this  question  may  be  cited,  in  addition  to  the  authorities  above  refer- 
red to  Cole  v.  Reynolds,  18  N.  Y.  74;  Schnair  v.  Schmidt,  59  Hun, 
625,  13  N.  Y.  Supp.  725;  Lathrop  v.  Knapp,  37  Wis.  307;  In  re 
Buckhause  (Ex  parte  Flynn)  2  Lowell  (U.  S.)  331,  Fed.  Cas.  No. 
2,086.  It  is  unnecessary  to  consider  whether  this  plaintiff,  as  the  re- 
ceiver of  the  creditor  partnership,  could  maintain  a  merely  legal  ac- 
tion against  the  members  of  the  other  firm.    Order  affirmed. 


III.  Action  at  Law  on  Individual  Obligation  * 


BURNS  V.  NOTTINGHAM. 

(Supreme  Court  of  Illinois,  1871.    60  111.  531.) 

Walker,  J.°  This  was  an  action  of  assumpsit,  brought  by  defend- 
ant in  error,  in  the  Kankakee  circuit  court,  against  plaintiff  in  error. 
A  trial  was  had  by  the  court  and  a  jury,  resulting  in  a  verdict  and 

*  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  157-161. 
8  Part  of  the  opinion  is  omitted. 


ACTION    AT   LAW   ON    INDIVIDUAL   OBLIGATION  301 

judgment  of  $1,000  against  plaintiff  in  error,  to  reverse  which  the  rec- 
ord is  brought  to  this  court  on  error. 

It  appears  that  the  parties  to  this  suit  were,  for  a  time,  partners  as 
sutlers  lor  the  army,  and  afterwards  took  one  Robinson  into  the  firm. 
This  action  was  brought  to  recover  a  balance  claimed  to  be  due  from 
plaintiff  in  error  on  a  settlement  of  the  affairs  of  the  firm;  but  it  is 
urged  by  plaintiff  in  error  that  the  evidence  fails  to  show  a  final  set- 
tlement, the  ascertainment  of  the  balance  due,  and  a  promise  to  pay  the 
same.  It  is  the  settled  law  of  this  court  that  one  partner  cannot  bring 
an  action  in  assumpsit  against  his  late  partner,  unless  upon  a  dissolu- 
tion of  the  copartnership  the  partners  account  together,  and  a  balance 
is  stated  in  favor  of  one,  and  the  other  agrees  to  make  payment  of 
such  sum.  The  balance  so  found  must  be  a  final  settlement  of  all  the 
partnership  accounts,  but  balances  only  struck  preparatory  to  a  final 
account  are  not  sufficient  to  form  the  subject-matter  of  an  action  at 
law.  Until  this  is  done,  the  remedy  is  in  equity.  Davenport  v.  Gear, 
2  Scam.  495;  Frink  v.  Ryan,  3  Scam.  322;  Chadsey  v.  Harrison,  11 
111.  lol;  Ridgway  v.  Grant,  17  111.  117.  And,  as  a  general  rule,  such 
a  settlement  must  be  accompanied  by  a  promise  to  pay  by  the  partner 
thus  found  indebted,  to  confer  jurisdiction  on  a  court  of  law. 

1  he  question  is,  then,  presented  whether,  in  this  case,  it  appears  that 
there  was  such  a  settlement  and  promise.  A  written  statement  signed 
by  the  parties  was  produced  and  read  in  evidence,  which  states  that 
it  is  a  settlement  between  the  parties  to  this  suit,  but  is  not  signed  by 
Robinson,  the  other  partner.  It  states  that  it  shows  the  profits  of  the 
concern.  It  fails  to  state  in  whose  hands  the  funds  were,  and  there  is 
no  presumption  that  one  partner  has  them,  rather  than  another,  as 
each  has  an  equal  right  to  retain  them  until  there  is  a  final  settlement. 

This  instrument  does  not  fix  any  amount  that  each  partner  is  en- 
titled to  receive  out  of  these  profits;  nor  does  it  appear  whether  the 
partners  had  each  received  his  share  of  the  capital  stock  put  into  the 
partnership,  or  what  amount,  if  anything,  may  have  been  drawn  out 
by  the  several  partners.  Although  called  a  settlement,  it  is  indefinite 
and  wholly  unsatisfactory  as  to  the  rights  and  liabilities  of  the  several 
oartners.  Again,  Robinson  was  not  a  party  to  this  statement,  and, 
if  he  were,  it  fails  to  appear  what  portion  of  these  profits  belong  to 
him.  This  written  statement  is  wholly  insufficient  to  fix  a  liability 
for  any  sum  on  plaintiff  in  error.     *     *     * 

In  considering  all  the  evidence,  we  fail  to  find  that  there  was  a  final 
settlement,  a  balance  struck,  and  a  promise  to  pay  the  balance.  It  is 
not  shown  by  the  written  instrument,  nor  is  any  amount  fixed  upon  by 
defendant  in  error,  which  was  admitted  by  plaintiff  in  error  as  being 
due  him;  and  plaintiff  in  error  denies  that  he  agreed  to  any  definite 
amount.  This,  then,  falls  far  short  of  the  evidence  of  such  a  settle- 
ment of  the  partnership  affairs,  and  the  striking  of  a  balance,  as  au- 
thorizes a  recovery  in  an  action  of  assumpsit  for  money  had  and  re- 
ceived. On  the  state  of  facts  disclosed  by  this  record,  the  only  remedy 
is  in  a  court  of  equity. 


302  ACTIONS    BETWEEN   PARTNERS 

The  court  below  erred  in  overruling  the  motion  for  a  new  trial,  and 
the  judg-ment  of  the  court  below  is  reversed,  and  the  cause  remanded. 
Judgment  reversed. 


LEDFORD  V.  EMERSON. 

(Supreme  Court  of  North  Carolina.  1905.    140  N.  C.  288.  52  S.  E.  641,  4  L.  R. 

A.  [N.  S.]  130.) 

The  principal  action  was  instituted  in  July,  1903,  to  recover  plain- 
tiff's share  arising  from  a  sale  of  certain  options  on  land  situated  in 
north  Georgia,  same  having  been  procured  by  plaintiff  in  the  years 
1900,  1901,  etc.,  and  sold  by  defendant  in  April,  1903,  at  a  price  of 
$10,000.  The  allegation  and  testimony  of  plaintiff  tended  to  show  that 
plaintiff  procured  a  large  number  of  options  on  land  in  north  Georgia, 
and  took  same  in  the  name  of  defendant,  under  an  agreement  that  de- 
fendant was  to  advance  the  incidental  expenses,  sell  said  options,  and 
divide  the  profits  equally  with  the  plaintiff;  that  defendant,  having 
sold  said  options  at  the  price  of  $10,000,  fraudulently  concealed  the 
facts  from  plaintiff  and  paid  plaintiff  $250  which  plaintiff  took  under 
false  and  fraudulent  assurances  as  to  the  disposition  of  the  options, 
giving  defendant  his  receipt  in  full,  and  defendant  had  failed  to  make 
any  other  or  further  payments  to  plaintiff  by  reason  of  said  deal,  etc. 
As  ancillary  to  the  principal  action,  an  order  of  arrest  was  issued  in 
the  cause  on  affidavits  duly  made  on  February  15,  1904,  and  defend- 
ant was  arrested  thereunder  and  held  to  bail.  There  was  a  motion^ 
to  discharge  the  order  of  arrest,  heard  before  Judge  Neal,  as  stated. 
Motion  allowed,  and  plaintiff  excepted  and  appealed. 

Hoke,  J.®  The  judge  below  on  the  hearing  found  the  facts  con- 
tained in  the  plaintiff's  affidavits  to  be  true,  and  held,  as  a  matter  of 
law,  that  on  these  facts  there  was  no  right  shown  to  arrest  defend- 
ant. His  honor  thereupon  discharged  the  order  of  arrest  and  entered 
judgment  exonerating  the  bail  from  any  and  all  liability  by  reason 
of  his  suretyship.  This,  as  we  understand,  was  on  the  idea  that  the 
facts  disclosed  a  case  of  partnership,  and  in  such  case  there  was  no 
legal  right  in  one  partner  to  cause  the  arrest  of  another.  It  is  a  well- 
recognized  principle  that,  during  the  continuance  of  a  partnership, 
one  partner  cannot  sue  another  on  any  special  transaction  which  may 
be  made  an  item  of  charge  or  discharge  in  a  general  partnership  ac- 
count. This  has  sometimes  been  put  on  the  ground  that  such  a  suit 
would  necessitate  that  the  party  complained  of  should  be  both  plain- 
tiff and  defendant.  But  I  apprehend  a  reason  of  more  moment  is 
that  as  to  such  a  transaction,  till  a  full  accounting  is  had,  it  cannot 
be  ascertained  or  declared  what  portion  of  such  claims  belong  to  the 
one  or  the  other;  and  so  it  is  true  that  one  partner,  during  the  con- 
tinuance of  the  partnership,  cannot  ordinarily  bring  trover  or  tres- 
pass against  the  other  by  reason  of  acts  concerning  partnership  prop- 

«  Part  of  the  opinion  Is  omitted. 


ACTION    AT   LAW    ON    INDIVIDUAL   OBLIGATION  303 

erty,  unless  the  same  be  destroyed  or  removed  entirely  beyond  the 
reach  or  control  of  the  complaining  party,  for  one  has  no  more  right 
to  deal  with  the  property  than  the  other.  Where,  however,  the  part- 
nersiiip  has  terminated,  and,  all  the  debts  having  been  paid  and  the 
partnership  affairs  otherwise  adjusted,  nothing  remains  to  be  done 
but  to  pay  over  an  amount  due  from  one  to  the  other,  to  be  ascertained 
by  a  reckoning  as  to  one  special  item,  or  even  several  items,  the  mat- 
ter presenting  no  complication  of  any  kind,  as  in  Clarke  v.  Mills,  36 
Kan.  393,  13  Pac.  5G9 ;  or  where  the  partnership  was  for  a  single 
venture  or  special  purpose,  which  has  been  closed,  and  nothing  remains 
but  to  pay  over  the  claimant's  share  of  the  proceeds,  as  in  Jacques 
V.  riulit,  16  N.  J.  Law,  38 — in  either  case  an  action  would  lie  in  favor 
of  one  against  the  other.  George  on  Partnership,  304 ;  Bates  on 
Partnership,  8G5,  866;  Clarke  v.  Mills,  and  Jacques  v.  Hulit,  supra; 
Musier  v.  Trumpbour,  5  Wend.  (N.  Y.)  274;  Moran  v.  Le  Blanc,  6 
La.  Ann.  113 ;  Wheeler  v.  Arnold,  30  Mich.  304.  In  Clarke's  Case, 
supra,  Holt,  P.  J.,  for  the  court,  said:  "There  were  no  debts  to  be 
paid,  no  money  to  be  collected,  no  property  to  be  disposed  of,  and  un- 
der the  facts  of  the  case  it  was  purely  a  pecuniary  demand,  involving 
no  complications  that  could  not  properly  be  determined  in  a  justice's 
court.  In  Wheeler  v.  Arnold,  supra,  it  is  held :  "The  remedy  at  law 
for  contribution  between  two  partners  after  dissolution  is  admissible, 
and,  when  there  have  been  no  such  dealings  with  assets  and  no  such 
private  relations  with  the  firm  as  to  make  a  settlement  difficult,  there 
would  be  no  occasion,  under  our  statutes  making  discovery  obtainable 
at  law  by  an  examination  of  parties  as  witnesses,  for  an  accounting 
in  equity."  In  Jacques  v.  Hulit,  supra,  it  is  held:  "A  mutual  cove- 
nant to  divide  the  proceeds  of  a  certain  crop,  if  it  be  a  partnership, 
is  so  only  for  a  special  purpose  and  terminates  as  soon  as  the  crop  is 
sold;  and  an  action  lies  by  one  of  the  parties  against  the  other  for 
any  balance  due  thereon  to  the  plaintiff  from  the  defendant,  without 
resorting  to  the  action  of  account  render." 

This  being  the  correct  doctrine,  and  an  action  at  law  maintainable, 
the  facts  bring  the  claim  within  the  provisions  of  our  statutes  on  arrest 
and  bail,  no  reason  occurs  to  us  why  the  plaintiff  should  be  deprived 
of  this  ancillary  remedy.     *     *     * 

There  was  error  in  allowing  the  defendant's  motion,  and  the  order 
to  that  effect  will  be  set  aside. 


COOK  V.  CAXXY. 
(Supreme  Court  of  Michigan.  1S93.    96  Mich.  398,  55  N.  W.  9S7.) 

Action  by  George  W.  Cook  against  Charles  C.  Canny  for  breach  of 
contract.  On  September  5,  1888,  complainant  filed  an  application  for 
letters  patent  of  the  United  States  for  improvements  in  underground 
conduits  for  electrical  conductors.  October  12,  1888,  plaintiff  and  de- 
fendant entered  into  written  articles  of  agreement  for  a  partnership, 


304  ACTIONS    BETWEEN  PARTNERS 

bv  which  the  plaintiff  agreed  to  assign  to  defendant  an  undivided  one- 
third  interest  in  the  invention  and  the  patent  which  might  be  obtained 
therefor  in  consideration  of  $1,000,  which  the  defendant  agreed  to 
pay  as  follows:  $300  in  cash  as  soon  as  notice  was  received  of  the 
allowance  of  the  patent;  a  monthly  payment  of  v$;50  per  month  for 
eight  months  from  the  date  of  allowance,  and  $160  on  the  1st  day 
of  September,  1889,  if  said  conduit  should  be  a  practical  success,  and 
should  perform  the  duties  specified  and  required  for  such  work.  The 
agreement  further  provided  for  carrying  on  the  business  after  the  al- 
lowance of  the  letters  patent,  and  defined  the  duties  of  each  partner. 
These  provisions  are  not  necessary  to  a  determination  of  the  case.  The 
letters  were  issued,  and  the  assignment  duly  made  to  the  defendant. 
Plaintiff  admitted  payments  of  $303.75.  The  defendant  claimed  to 
have  paid  $164.  Plaintiff  gave  evidence  tending  to  show  that  the  con- 
duit was  a  practical  success.  Defendant  gave  evidence  tending  to  show 
the  contrary,  and  that  the  contract  was  abandoned  by  mutual  consent. 
The  court  instructed  the  jury  that,  if  the  conduit  was  not  a  practical 
success,  or  if  the  contract  was  abandoned  by  mutual  consent,  the  plain- 
tiff could  not  recover.  At  the  request  of  the  defendant  the  following 
special  question  was  presented  to  the  jury,  viz.:  Do  you  find  that 
the  conduit  was  a  practical  success?  which  question  the  jury  answer- 
ed in  the  affirmative.  Verdict  and  judgment  for  the  plaintiff'  for  $840.- 
95.    Defendant  brings  error. 

Grant,  J.'^  It  is  first  insisted  by  defendant  that  a  suit  at  law  cannot 
be  maintained  on  account  of  the  partnership  relations.  The  sum  sued 
for  does  not  grow  out  of  their  partnership  transactions  subsequent  to 
the  formation  of  the  partnership.  It  is  an  independent  consideration, 
which  defendant  agreed  to  pay  the  plaintiff  for  an  interest  in  the  let- 
ters patent  which  were  to  form  the  basis  of  their  subsequent  partner- 
ship relations  and  dealings.  The  sum  which  the  defendant  agreed  to 
pay  was  to  launch  the  enterprise  in  its  very  inception.  This  case, 
therefore,  forms  one  of  the  exceptions  to  the  rule  that  one  partner  can- 
not maintain  an  action  at  law  against  his  copartner  for  work  done  or 
money  expended  in  the  partnership.  An  agreement  to  pay  money  or 
to  furnish  stock  for  the  purpose  of  launching  the  partnership  is  an  in- 
dividual engagement  of  each  partner  to  the  other,  and  the  defaulting 
partner  may  be  sued  in  an  action  at  law  upon  his  agreement.  It  is 
entirely  separate  and  distinct  from  the  partnership  accounts,  and  this 
forms  the  true  test  in  determining  whether  an  action  at  law  will  lie 
by  one  partner  against  his  copartner.  1  Story,  Eq.  Jur.  §  665 ;  Brown 
v.  Tapscott,  6  ]\Iees.  &  W.  119 ;  Van  Ness  v.  Forrest,  8  Cranch  (U.  S.) 
30,  3  L.  Ed.  478 ;  Currier  v.  Rowe,  46  N.  H.  72 ;  Neil  v.  Greenleaf , 
26  Ohio  St.  570 ;  Howard  v.  France,  43  N.  Y.  593 ;  Crater  v.  Bining- 
er,  45  N.  Y.  545;  Lindley,  Partn.  1024.     *     *     * 

Judgment  affirmed. 

1  Part  of  the  opinion  is  omitted. 


EQUITABLE   ACTIONS   IN    GENERAL — JTJEISDICTION  305 

IV.  Equitable  Actions  in  General — Jurisdiction  ' 


BRACKEN  V.  KENNEDY  et  a!. 
(Supreme  Court  of  Illinois,  1842.     4  111.  558.) 

CaTon,  J.*  This  was  a  bill  in  chancery,  filed  in  the  La  Salle  circuit 
court  by  the  complainant  against  the  defendants,  for  an  account  among 
partners.  The  bill  states  that  in  July,  1837,  the  complainant  and  de- 
fendants entered  into  partnership  as  canal  contractors,  and  as  such 
partners  contracted  with  a  canal  company  in  Virginia  for  the  con- 
struction of  section  120  of  their  canal,  and  that  they  completed  said 
section  120  in  August,  1838;  that  during  the  progress  of  the  work 
the  complainant  and  Brady  had  the  principal  management  of  its  con- 
struction, while  most  of  the  time  Kennedy  was  absent;  that  at  the 
same  time  Kennedy  had  an  individual  contract  for  the  construction 
of  sections  118  and  119  of  the  same  canal,  and  Kennedy  employed  the 
complainant  to  superintend  the  completion  of  these  sections;  that  this 
individual  contract  of  Kennedy  was  unprofitable,  and  in  the  course  of 
its  progress  he  became  indebted  to  the  copartnership  section,  120,  to 
about  $8,000  for  work  and  labor  expended  on  sections  118  and  119 ; 
that  the  whole  estimate  for  the  company  section,  120,  was  $32,320.90, 
including  the  work  done  on  Kennedy's  individual  sections,  and  that 
the  costs  of  the  same  were  $23,738.82,  leaving  a  balance  of  profits 
to  be  divided  among  the  partners  of  $8,437.08 ;  that  the  complainant 
has  accounted  with  and  paid  over  to  Brady  his  third  of  the  said  prof- 
its; and  that  there  is  now  due  from  Kennedy  to  the  complainant 
the  sum  of  $3,959.03,  arising  from  said  partnership  transactions ;  that 
Kennedy  has  drawn  estimates  on  the  works,  and  has  drawn  his  last 
on  his  individual  contracts ;  that  no  account  has  been  taken  or  render- 
ed between  the  said  partners;  and  that  Kennedy  refuses  to  account. 
The  bill  prays  that  an  account  may  be  taken,  etc. 

To  this  bill  a  demurrer  was  filed,  which  was  sustained,  and  the  bill 
dismissed. 

The  first  assignment  of  error  is  upon  the  decision  of  the  court  in 
sustaining  the  demurrer,  and  this  is  the  principal  question  in  the  case. 

In  matters  of  controversy  or  difficulty  between  partners,  it  is  now 
most  usual,  and  by  far  the  most  convenient,  to  resort  to  a  court  of 
equity  for  their  final  adjudication  and  settlement.  The  practice  of 
this  court  is  much  better  adapted  to  unravel  and  definitely  settle  such 
complicated  questions  as  frequently  arise  among  partners  than  a  court 
of  law;    and  it  is  now  one  of  the  most  usual  proceedings  to  be  me» 

8  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  162-165. 
•  Part  of  the  opinion  and  the  statement  of  facts  are  omitted. 
Gilm.Pabt.— 20 


306  ACTIONS    BETWEEN   PARTNERS 

with  in  courts  of  equity.  It  is  not  unusual  that  almost  the  entire  proof 
of  the  merits  of  a  case  between  partners  is  locked  up  in  the  bosoms 
of  the  parties  themselves,  or  is  contained  in  books  and  papers  in  the 
possession  of  one  or  the  other  party,  and  this  court  can  afford  the 
only  key  to  the  disclosure  of  the  one  or  the  production  of  the  other. 
Here  either  party  may  compel  the  other  to  purge  his  conscience  on 
oath  and  declare  the  truth;  and  tlie  court  will  compel  the  production 
of  all  such  papers  and  books  as  may  be  necessary  to  elucidate  the 
rights  and  habilities  of  the  parties.  It  is  for  this  reason  that  courts 
of  equity  have  frequently  exercised  a  concurrent  jurisdiction  with 
courts  of  law  in  long  and  intricate  accounts,  running  on  both  sides, 
between  parties  who  are  not  partners  and  have  no  interests  in  common. 

It  is  true  that  courts  of  law  still  pretend  to  afford  a  remedy,  in  case 
of  difffculty  between  partners,  by  the  action  of  account;  but  it  is  so 
incomplete  and  unsatisfactory  that  it  is  now  nearly  obsolete,  and  the 
complaining  partner  almost  universally  lays  his  complaint  before  a 
court  of  chancery,  where  he  finds  a  prompt  and  efficient  remedy,  from 
the  superior  facilities  which  it  possesses  of  doing  complete  justice  be- 
tween the  parties. 

In  a  bill  of  this  character  the  existence  of  the  partnership,  the  trans- 
action of  business  by  the  firm,  and  no  account  among  its  members,  are 
prominent  features,  and  where  they  all  appear  I  am  not  prepared  to 
say  that  the  bill  ought  not  in  all  cases  to  be  retained.    In  this  case  the 
bill  shows  that  there  was  a  special  and  limited  partnership,  the  par- 
ticular object  of  which  is  stated  in  it,  as  well  as  the  nature  and  amount 
of  the  business  transacted  by  the  firm,  and  that  no  account  has  been 
had  between  the  complainant  and  the  defendant  Kennedy,  who  refuses 
to  account.    Here,  then,  is  such  a  case  as  requires  the  interposition  of 
a  court  of  chancery  to  settle  and  adjust  the  rights  and  claims  of  the 
several  partners.    It  is  true  that  the  bill  states  that  the  complainant  and 
Brady  have  settled  as  between  themselves,  and  that  the  complainant 
has  succeeded  to  all  of  the  rights  and  interests  of  Brady  in  the  part- 
nership business;   but  this  does  not  make  it  the  less  necessary  that  an 
account  should  be  had  between  the  complainant  and  Kennedy,  to  settle 
their  respective  rights;    and  to  accomplish  this   it  was  necessary  to 
make  Brady  a  party  to  the  bill.    The  bill  also  states  that  the  partner- 
ship advanced  to  Kennedy,  one  of  its  members,  in  work  and  labor,  etc., 
to  the  amount  of  some  $8,000,  which  is  nearly  the  extent  of  the  part- 
nership profits,  thus  showing  substantially  that  Kennedy  had  received 
nearly  all  of  the  profits  of  the  work  on  section   120.     In  what  way 
could  this  be  recovered  back  by  the  other  members  of  the  firm,  or  in 
what  way  could  he  be  compelled  to  account  for  these  advances,  unless 
by  the  mode  here  adopted  ?    One  member  of  a  partnership  cannot  sue 
the  firm  at  law  for  advances  made  by  him  to  the  joint  concern;   nor 
can  the  firm  sue  an  individual  partner  for  anything  that  he  may  have 
drawn  out  of  the  joint  stock  or  proceeds,  no  matter  how  much  more 
than  his  share  it  might  have  been ;  and  the  reason  is  that  one  man  can- 


ACCOUNTING   AND   DISSOLUTION  307 

not  occupy  the  double  position  of  plaintiff  and  defendant  at  the  same 
time.  1  Story's  Eq.  GIG.  The  aid  of  this  court  is  just  as  necessary 
to  settle  the  account  of  these  advances  as  it  is  to  settle  the  accounts 
arising  out  of  the  immediate  transactions  of  the  special  business  of  the 
partnership. 

The  bill,  then,  being  sufficient  in  substance,  although  not  so  par- 
ticular as  might  be  desirable,  the  demurrer  should  have  been  overruled. 
*  *  *  The  decision  of  the  court  below  is  reversed,  and  the  cause 
remanded,  with  directions  that  the  complainant  be  permitted  to  amend 
his  bill,  if  he  thinks  proper,  and  with  leave  for  the  defendant  to  answer. 

Decree  reversed. 


V.  Accounting  and  Dissolution^" 


LORD  et  al.  v.  HULL. 

(Court  of  Appeals  of  New  York,  1904.     ITS  N.  Y.  9,  70  N.  E.  69,  102  Am.  St. 

Rep.  4S4.) 

Action  by  Austin  W.  Lord  and  others  against  Washington  Hull  and 
Kenneth  M.  Murchison,  Jr.  From  a  judgment  of  the  Appellate  Di- 
vision (80  App.  Div.  194,  80  N.  Y.  Supp.  321),  affirming  a  judgment 
for  plaintiffs  and  IMurchison  (37  Misc.  Rep.  83,  74  N.  Y.  Supp.  711), 
defendant  Hull  appeals. 

It  is  alleged  in  the  complaint  that  in  September,  1894,  the  plaintiffs 
and  the  defendant  Hull  formed  a  copartnership  to  carry  on  business 
as  architects  in  the  city  of  New  York,  at  first  for  a  definite  period,  but 
finallv  until  certain  work  was  finished,  and  that  the  time  for  the  ter- 
mination thereof  was  uncertain,  owing  to  the  large  number  of  unfinish- 
ed contracts  on  hand.  The  powers,  rights,  and  obligations  of  the  co- 
partners were  in  all  respects  equal.  On  the  18th  of  February,  1896, 
a  written  agreement  was  made  in  the  name  of  the  firm  with  Kenneth 
M.  Murchison,  Jr.,  containing  a  promise  "to  pay  him  ten  per  cent,  of 
the  gross  commissions  for  the  work  on  the  residence  of  William  A. 
Clark,"  not  yet  completed.  The  rest  of  the  complaint  (IMurchison 
not  having  been  a  party  when  it  was  drawn)  is  as  follows:  "That  a 
disagreement  has  arisen  between  the  plaintiff's  and  defendant  as  to  the 
payments  which  have  been  and  are  still  to  be  made  to  the  said  Kenneth 
M.  Murchison,  Jr.,  and  as  to  the  obligations  of  the  copartnership  to 
the  said  Murchison,  Jr.,  under  the  contract  entered  into  by  said  co- 
partners and  said  Murchison,  being  the  agreement  of  February  18, 
189G  (Schedule  B,  hereto  annexed),  hereinbefore  set  forth;  that  the 
defendant  has  withdrawn  from  the  funds  of  the  copartnership  and 
has  appropriated  to  his  own  use  the  sum  of  $015,  which  was  a  sum 

10  For  a  discussion  of  principles,  see  Gilmore  on  Partuership,  §§  1GG-1G9. 


308  ACTIONS    BETWEEN   PARTNERS 

largely  in  excess  of  any  and  all  sums  to  which  he  was  entitled  at  the 
time  of  such  withdrawal,  and  threatens  to  withdraw  from  the  funds 
of  the  said  copartnership  from  time  to  time  hereafter  such  sum  or  sums 
as  he  may  deem  himself  entitled  to,  irrespective  of  the  rights  of  the 
plaintiffs ;   that  the  plaintiffs  do  not  desire  to  dissolve  the  copartnership 
existing  between   them   and   the   defendant,    for  the    reason   that  the 
plaintiffs  believe  that  the  contracts  entered  into  between  such  copart- 
nership and  William  A.  Clark,  the  owner  of  one  of  the  works  set  forth 
in  Schedule  C,  hereto  annexed,  and  yet  incomplete,  require  the  exercise 
of  the  professional  skill  and  ability  of  all  the  members  of  the  said  firm, 
which  could  not  be  secured  upon  a  dissolution  of  the  said  copartner- 
ship, and  that  loss  and  damage  would  be  sustained  by  the  plaintiffs 
if  such  contracts  were  broken  by  the  dissolution  of  said  copartnership; 
that  the  plaintiffs  are  without  an  adequate  remedy  at  law."     There 
was  no  allegation  that  Hull  was  insolvent,  or  that  there  was  any  oc- 
casion for  an  accounting,  except  with  reference  to  the  Murchison  con- 
tract.   The  relief  demanded  was  an  accounting  as  to  all  copartnership 
affairs  to  date,  and  an  adjudication  of  the  rights  and  obligations  of  the 
parties  under  their  copartnership  agreement  and  under  the  contract 
with  Murchison.    There  was  also  a  prayer  for  general  relief,  but  none 
for  an  injunction,  either  temporary  or  permanent.    The  defendant  Hull 
alleged  in  his  answer  that  the  agreement  with  Murchison  was  made 
without  authority,  and  was  not  binding  on  the  firm;    that  the  plain- 
tiffs had  unlawfully  paid  him  thereon  large  sums  of  money  out  of  the 
funds  of  the  firm ;    and  that  they  threaten  to  continue  such  payments. 
A  few  days  before  the  action  was  tried,  Murchison  moved  at  Special 
Term,  on  notice  to  the  parties,  to  be  made  a  party  defendant,  with 
leave  to  serve  an  answer  upon  both  the  plaintiffs  and  the  defendant. 
The  motion,  although  opposed,  was  granted,  and  no  one  appealed  from 
the  order.    The  answer  of  Murchison,  served  on  all  the  parties,  after 
certain  denials,  set  forth,  "by  way  of  an  equitable  counterclaim,"  the 
agreement  between  himself  and  the  firm,  and  alleged  that  the  firm 
owed  him  the  sum  of  $2,100  and  upwards  thereon.     He  asked  for  an 
accounting  to  ascertain  the  amount  received  by  the  firm  as  commissions 
from  said  Clark,  and  for  judgment  against  the  plaintiffs  and  the  de- 
fendant Hull  for  the  amount  found  due  him,  with  other  relief.     The 
last  set  of  copartnership  articles  provided  "that  upon  completion  of 
the  works  above  mentioned  a  true  and  final  accounting  shall  be  made 
by  the  parties  to  this  agreement  each  to  the  others,  and  all  the  property 
of  the  firm     *     *     *     shall  be  equally  divided  between  them."    Upon 
the  trial  it  appeared  from  the  testimony  of  the  plaintiffs  that  there  was 
"nothing  to  have  an  accounting  about,  except  Mr.  Murchison's  share 
of  those  commissions."     The  trial  judge  found  the  facts  as  alleged 
by  the  plaintiffs  and  the  defendant  Murchison,  and  the  decree  entered 
held  the  Murchison  agreement  valid  and  binding  upon  the  firm,  inter- 
preted its  meaning  in  accordance  with  their  contention,  and  awarded 
judgment  in  favor  of  the  plaintiffs  and  against  the  defendant  Hull  for 
$1,415.27,  with  costs,  and  in  favor  of  the  defendant  Murchison  against 


ACCOUNTING    AND   DISSOLUTION  309 

the  plaintiffs  and  the  defendant  Hull  for  the  sum  of  $3,000,  besides 
costs.  Upon  appeal  by  Hull  to  the  Appellate  Division,  the  judgment 
was  in  all  things  affirmed — two  of  the  justices  dissenting — and  he 
now  comes  to  this  court. 

Vann,  J.^^  This  action  was  brought  by  two  copartners  against  the 
third  for  an  accounting,  without  a  dissolution,  and  it  is  not  surprising 
that  a  challenge  is  interposed  to  the  jurisdiction  of  the  court.  The 
contract  of  copartnership  has  existed  as  long  as  the  common  law,  and 
a  vast  amount  of  business  has  been  transacted  by  persons  working  to- 
gether under  this  relation.  The  law  upon  the  subject  is  founded  on  the 
custom  of  merchants,  who  have  thus,  in  effect,  made  their  own  law,  yet 
we  find  no  well-considered  case  which  approves  of  such  an  action  as  the 
one  now  before  us.  While  the  novelty  of  an  action  is  by  no  means  con- 
clusive against  it,  still  it  is  suggestive,  when  the  history  of  the  law 
relating  to  the  subject  shows  many  occasions  and  few  efforts. 

The  general  rule  is  that  a  court  of  equity,  in  a  suit  by  one  partner 
against  another,  will  not  interfere  in  matters  of  internal  regulation, 
or  except  with  a  view  to  dissolve  the  partnership,  and  by  a  final  decree 
to  adjust  all  its  affairs.  Story  on  Partnership,  §  229;  Lindley,  567; 
Gow,  114;  Parsons,  §  206;  Bates,  §  910;  Collier,  §  236.  It  is  not 
its  office  "to  enter  into  a  consideration  of  mere  partnership  squabbles" 
(Wray  v.  Hutchinson,  2  Mylne  &  Keen,  235,  238),  or  "on  every  occa- 
sion to  take  the  management  of  every  playhouse  and  brewhouse"  (Car- 
lin  V.  Drury,  Vesey  &  B.  153,  158).  If  the  members  of  a  firm  cannot 
agree  as  to  the  method  of  conducting  their  business,  the  courts  will  not 
attempt  to  conduct  it  for  them.  Aside  from  the  inconvenience  of  con- 
stant interference,  as  litigation  is  apt  to  breed  hard  feelings,  easy  ap- 
peals to  the  courts  to  settle  the  diff'erences  of  a  going  concern  would 
tend  to  do  away  with  mutual  forbearance,  foment  discord,  and  lead 
to  dissolution.  It  is  to  the  interest  of  the  law  of  partnership  that  fre- 
quent resort  to  the  courts  by  copartners  should  not  be  encouraged,  and 
they  should  realize  that,  as  a  rule,  they  must  settle  their  own  differ- 
ences, or  go  out  of  business.  As  a  learned  writer  has  said :  "A  part- 
ner who  is  driven  to  a  court  of  equity,  as  the  only  means  by  which  he 
can  get  an  accounting  from  his  copartners,  may  be  supposed  to  be 
in  a  position  which  will  be  benefited  by  a  dissolution ;  in  other  words, 
such  a  partnership  as  that  ought  to  be  dissolved."  Parsons  on  Part- 
nership (4th  Ed.)  §  206.  "If  a  continuance  of  the  partnership  is  con- 
templated," as  another  commentator  has  said,  "or  if  an  accounting 
of  only  part  of  the  partnership  concerns  is  allowed,  no  complete  justice 
can  be  done  between  the  partners,  and  the  fluctuations  of  a  continuing 
business  will  render  the  accounting  which  is  correct  to-day  incorrect 
to-morrow;  and  to  entertain  such  bills  on  behalf  of  a  partner  would 
involve  the  court  in  incessant  litigation,  foment  disputes,  and  need- 
lessly drag  partners  not  in  fault  before  the  public  tribunals."  2  Bates 
on  Partnership,  §  910.     Judge  Story  declared  that  "a  mere  fugitive, 

11  Part  of  the  opinion  Is  omitted. 


310  ACTIONS    BETWEEN  PARTNERS 

temporary  breach,  involving  no  serious  evils  or  mischief,  and  not  en- 
dangering the  future  success  and  operations  of  the  partnership,  will 
therefore  not  constitute  any  case  for  equitable  relief.  *  *  *  It  is 
very  certain  that,  pending  the  partnership,  courts  of  equity  will  not 
interfere  to  settle  accounts  and  set  right  the  balance  between  the  part- 
ners, but  await  the  regular  winding  up  of  the  concern."  Story  on 
Partnership,  §§  225,  229. 

While  a  forced  accounting  without  a  dissolution  is  not  impossible, 
it  is  by  no  means  a  matter  of  course,  for  facts  must  be  alleged  and 
proved  showing  that  it  is  essential  to  the  continuance  of  the  business, 
or  that  some  special  and  unusual  reason  exists  to  make  it  necessary. 
Thus,  Mr.  Lindley,  upon  whom  reliance  was  placed  by  the  courts  be- 
low, mentions  three  classes  of  cases  as  exceptions  to  the  general  rule: 
"(1)  Where  one  partner  has  sought  to  withhold  from  his  copartner 
the  profits  arising  from  some  secret  transaction;  (2)  where  the  part- 
nership is  for  a  term  of  years  still  unexpired,  and  one  partner  has 
sought  to  exclude  or  expel  his  copartner,  or  drive  him  to  a  dissolution ; 
(3)  where  the  partnership  has  proved  a  failure,  and  the  partners  are 
too  numerous  to  be  made  parties  to  the  action,  and  a  limited  account 
will  result  in  justice  to  them  all."  The  plaintiffs  claim  that  this  case 
belongs  to  the  second  class,  and  the  courts  below  have  so  held;  but, 
as  we  think,  it  does  not  come  under  any  head  of  Mr.  Lindley's  class- 
ification, which  is  correct  as  far  as  it  goes,  and  it  goes  as  far  in  the 
direction  of  the  plaintiffs'  theory  as  any  just  classification  that  can 
be  made. 

There  is  neither  allegation  nor  evidence  that  Hull  tried  to  exclude 
or  expel  the  plaintiffs,  or  to  drive  them  to  a  dissolution,  or  that  he  did 
anything  in  bad  faith  or  with  an  ulterior  purpose.  The  controversy 
was  confined  to  one  point  of  difference — the  Murchison  contract — 
which  was  a  matter  of  internal  regulation.  There  was  no  dispute 
about  anything  else.  The  plaintiffs  claimed  that  the  contract  bound 
the  firm,  and  that  it  included  all  work  done  or  to  be  done  for  Mr. 
Clark,  w^hile  Hull  claimed  that  it  did  not  bind  the  firm,  and  that,  if  it 
did,  it  embraced  only  a  part  of  that  work.  There  was  no  difference 
in  the  computation  of  balances,  or  claim  that  the  articles  had  been 
violated  by  either  side,  except  with  reference  to  that  contract.  The 
plaintiffs  insisted  that  Hull  had  drawn  out  more  than  his  share  of  the 
profits,  because  he  drew  one-third  of  the  income  without  leaving  one- 
third  of  the  part  going  to  Murchison,  and  that  thus  there  was  a  bal- 
ance against  him.  Hull  claimed  that  the  plaintiffs,  in  paying  anything 
to  Murchison,  wasted  the  assets  of  the  firm,  and  thus  there  was  a  bal- 
ance against  them.  When  the  interlocutory  judgment  was  made,  the 
parties  at  once  stipulated  the  respective  balances  on  the  basis  of  that 
decree,  and  thus  obviated  a  reference,  so  that  final  judgment  was  enter- 
ed without  delay.  Neither  party  desired  an  accounting,  except  as  an 
excuse  to  sustain  or  defeat  the  Murchison  contract.  Exclusion  from  a 
smail  portion  of  the  profits,  paid  or  withheld  in  good  faith  on  account 


ACCOUNTING   AND   DISSOLUTION  311 

of  that  contract,  was  not  exclusion  from  the  affairs  of  the  firm,  yet  an 
accounting'  was  sought  only  as  a  means  of  settling  the  dispute  over 
that  particular  subject,  which  related  simply  to  a  detail  in  the  manage- 
ment of  the  business.  No  discovery  was  asked  for.  There  was  no 
claim  that  Hull  was  insolvent,  or  that  he  had  suppressed  any  fact,  or 
had  made  secret  profits,  or  had  been  guilty  of  bad  conduct,  or  that  the 
books  had  not  been  properly  kept,  or  that  the  plaintifTs  had  been  denied 
access  to  the  books.  There  was  no  evidence  that  any  partner  had  re- 
fused to  give  an  account  of  all  moneys  received  by  him,  or  that  there 
was  error  or  omission  of  any  kind  in  the  accounts  of  the  firm,  except 
as  limited  to  the  Murchison  agreement.  It  was  easy  to  test  the  valid- 
ity of  that  contract  by  simply  withholding  payment,  forcing  Murchison 
to  sue,  and  raising  the  question  by  answer.  That  was  not  an  equitable, 
but  a  legal  question.  Murchison's  claim  did  not  differ  from  that  of 
any  firm  creditor,  except  that  the  partners  were  at  odds  over  its  va- 
lidity. "No  action  can  be  maintained  by  one  partner  against  the  other 
in  respect  to  particular  items  of  account  pertaining  to  the  partnership 
business."    Thompson  v.  Lowe,  111  Ind.  274,  12  N.  E.  477. 

An  accounting  without  a  dissolution  has  never  been  allowed,  under 
the  circumstances  of  this  case,  by  any  court  in  this  country  or  in  Eng- 
land, so  far  as  we  can  learn  from  the  authorities  cited  by  counsel  or 
discovered  by  ourselves.     *     *     * 

A  court  of  equity  will  not  take  cognizance  of  an  action  for  an  ac- 
counting as  a  mere  incident  to  the  settlement  of  a  solitary  matter  in 
dispute  between  partners,  when  it  is  not  vital  to  either  party  or  to  the 
business,  and  dissolution  is  not  sought.  Actions  to  establish  a  part- 
nership, the  existence  of  which  was  denied  by  the  partner  in  control 
to  give  a  partner  access  to  the  books  after  persistent  refusal,  or  to  per- 
mit him  to  take  part  in  the  business  from  which  he  had  been  excluded, 
are  founded  on  intentional  and  continuous  wrongdoing,  which,  unless 
arrested,  might  subvert  the  partnership.  When  one  party  seizes  or 
absorbs  the  entire  business,  or  usurps  rights  of  his  copartner  which  are 
essential  to  his  safety  or  the  safety  of  the  firm,  or  persists  in  miscon- 
duct so  gross  as  to  threaten  destruction  to  the  interests  of  all,  the  court 
may  intervene  to  restore  the  rights  of  the  innocent  party,  or  to  rescue 
a  paying  business  from  ruin.  Extreme  necessity  only,  however,  will 
justify  interference  without  a  dissolution.  There  was  no  sufficient 
reason  for  an  appeal  to  a  court  of  equity  in  the  case  under  considera- 
tion. There  was  no  equity  in  the  bill  as  filed  by  the  plaintiffs,  and 
none  in  the  case  made  for  them  by  the  evidence.  The  defendant  Mur- 
chison had  an  adequate  remedy  at  law,  and  he  can  take  nothing  from 
his  intrusion  into  the  litigation,  under  the  circumstances,  for  the  ques- 
tionable order  admitting  him  as  a  defendant  did  not  create  a  cause  of 
action,  nor  add  to  the  jurisdiction  of  the  court.  All  the  parties  should 
be  put  back  where  they  were  before  the  action  was  commenced,  and 
hence  it  is  our  duty  to  reverse  the  judgments  below  and  dismiss  the 
complaint,  with  costs  to  the  defendant  Hull  against  the  plaintiffs  and 
the  defendant  Murchison. 


312  ACTIONS   BETWEEN   PARTNERS 


VI.  Specific  Performance  *' 


BUCK  V.  SMITH. 
(Supreme  Court  of  Michigan,  1S74.    29  Mich.  166,  18  Am.  Rep.  84.) 

Graves,  C.  J.^'  Now,  what  is  the  real  essence  of  the  case  made  by 
this  bill  ?  What  is  the  arrangement  the  court  is  asked  to  carry  out  ?  It 
is  an  agreement,  according  to  the  representation  of  complainant,  be- 
tween himself  and  the  defendant,  by  which  the  latter  agreed  to  convey 
an  undivided  interest  in  real  and  personal  property  held  by  defendant 
in  common  with  third  persons,  and  that  the  complainant  should,  for  an 
indefinite  time,  become  a  partner  with  the  defendant  and  such  third 
persons  in  operating  the  property ;  that  the  defendant  should  advance 
from  time  to  time  the  complainant's  quota  of  the  funds  necessary  for 
the  business  and  the  improvement  of  the  property ;  that  the  complain- 
ant should  have  the  right  to  manage  and  direct  the  business  and  the 
improvements;  and  that  he  would  employ  his  time,  skill,  judgment,  and 
experience  in  the  direction  and  supervision  of  the  property  and  business  ; 
and  that  the  purchase  price  of  his  proprietary  share  and  the  amount 
advanced  for  his  benefit  in  carrying  on  the  business  should  be  paid  by 
his  skill  and  services  in  the  concern  and  the  gains  obtained  in  the  en- 
terprise.    *     *     ♦ 

It  is  extremely  plain  that  the  court  cannot  assume  to  enforce  the 
performance  of  daily  prospective  duties,  or  supervise  or  direct  in  ad- 
vance the  course  or  conduct  of  one  who  is  to  control  and  manage  in  the 
interest  of  a  firm  in  which  he  is  to  stand  as  a  member,  and  where,  too, 
the  stipulated  arrangement  as  plainly  set  forth  contemplates  that  his 
personal  skill  and  judgment  shall  be  applied  and  govern  according  to 
to  the  shifting  needs  of  property  and  business.  No  court  is  competent 
to  execute  such  an  arrangement.     *    *    * 


VII.  Injunction  and  Receiver 


SHANNON  et  al.  v.  WRIGHT. 
(Court  of  Appeals  of  Maryland,  1883.    60  Md.  521.) 

The  appellee,  together  with  the  appellants,  were  copartners  in  the 
business  of  manufacturing  and  dealing  in  metals  in  the  city  of  Balti- 

12  For  a  discussion  of  principles,  see  Gllmore  on  Partnership,  §  170. 

18  Part  of  the  opinion  is  omitted. 

1*  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  171,  172. 


INJUNCTION    AND   EECEIVEB  313 

more,  under  the  firm  name  of  Shannon,  Wright  &  Co.  A  bill  was 
filed  by  the  appellee  a£,'-ainst  the  appellants,  asking  for  an  injunction 
and  the  appointment  of  a  receiver.  The  case  is  further  stated  in  the 
opinion  of  the  court. 

Ritchie,  J.^°    This  is  an  appeal  from  an  order  of  the  circuit  court 
of  Baltimore  City  appointing  a  receiver  and  granting  an  injunction. 
*     *     *     Our  duty,  therefore,  is  simply  to  determine  whether  the  case 
stated  by  the  complainant  was  one  which  justified  the  passage  of  the 
order  appealed  from.    Without  pausing  to  dwell  upon  those  averments 
of  the  complainant  which  impute  fraudulent  misrepresentations  to  the 
defendants  as  to  the  value  of  the  firm's  assets  and  its  business,  by  which 
he  was  induced  to  enter  into  a  partnership  with  them,  which  has  dis- 
proportionately engulfed  his  means  and  exposed  him  to  great  loss,  we 
find  in  the  specific  allegations  of  clause  10  of  the  bill  ample  ground  for 
the  equitable  interposition  he  has  invoked.     That  clause  is  as  follows : 
"And  now  your  orator  charges  that  debts  are  due  by,  and   suits 
are  pending  against,  the  firm,  and  that  the   defendants,  having  the 
money  of  the  firm  in  their  possession,  refuse  to  apply  it  toward  the 
payment  of  said  debts;    that  they  refuse  to  give  any  money  to  your 
orator;    that  they  refuse  to  permit  your  orator's  counsel  to  examine 
the  books  of  the  firm;    that  they  refuse  to  allow  a  competent  book- 
keeper, selected  by  your  orator,  to  examine  the  books  of  the  firm ;   that 
in  order  to  anticipate  debts  owing  to  the  firm,  and  thus  get  the  firm's 
money  in  their  pockets,  they  have  drawn  drafts  in  the  name  of  the 
firm  upon  their  customers,  and  procured  the  same  to  be  discounted  by 
their  lawyer  and  others  at  exorbitant  rates  of  interest;    that  without 
the  knowledge  or  consent  of  your  orator  they  have  given  notes  of  the 
firm  in  settlement  of  debts  not  owing  by  the  firm,  one  of  said  debts 
being  for  clothing  purchased  by  D.  R.  Shannon  and  John  T.  Shannon 
individually;    that  without  the  knowledge  or  consent  of  your  orator 
the  said  D.  R.  and  John  T.   Shannon  have  offset  their  own  debts 
by  sales  of  merchandise  of  the  firm  of  Shannon,  Wright  &  Co. ;    that 
they  have  no  tangible  property  outside  of  their  interest  in  said  firm; 
that  they  represent  themselves  to  be  three  stubborn  brothers,  and  ex- 
press their  intention  of  litigating  the  matters  in  controversy  by  means 
of  the  firm's  money  until  they  have  ruined  your  orator ;    that  the  said 
D.  R.  Shannon  and  John  T.  Shannon  refuse  to  return  the  money  which 
has  been  advanced  to  pay  their  debts ;   that  defendants  declare  them- 
selves to  be  unwilling  to  continue  said  partnership,  even  if  your  orator 
was  willing,  and  yet  they  utterly  refuse  to  dissolve  the  partnership; 
that  they  threaten  to  make  contracts  in  the  name  of  the  firm,  knowing 
they  cannot  be  carried  out,  which  contracts,  if  made,  will  render  your 
orator  liable  in  damages;  that  judgments  will  shortly  be  entered  against 
the  firm,  and  your  orator  damaged,  unless  the  money  in  the  hands  of 
the  defendants  be  applied  to  the  payment  of  the  notes  sued  on,  as  above 

16  I'art  of  tbe  opinion  is  omitted. 


314  ACTIONS    BETWEEN  PARTNERS 

Stated ;  and  your  orator  charges  that  unless  immediate  relief  be  given 
by  way  of  an  injunction  and  receiver,  which  he  is  advised  is  the  prop- 
er remedy,  he  will  be  reduced  from  a  reasonable  competence  to  oov- 
erty."  ^ 

There  is  evidently  here  set  out  such  a  case  of  alleged  fraud  and  im- 
minent danger  to  the  complainant's  interest  in  the  partnership  prop- 
erty as  justifies  a  receiver  and  an  injunction — proceedings  which  do 
not  determine  the  rights  of  the  parties,  but  simply  protect  the  prop- 
erty from  injury  or  destruction  until  those  rights  can  be  further  in- 
quired into  or  adjudicated.    The  order  appealed  from  must  be  affirmed. 

Order  affirmed,  and  cause  remanded. 


ACTIONS   BETWEEN   PARTNERS  AND   TUIUD    PERSONS  315 

ACTIONS  BETWEEN  PARTNERS  AND  THIRD  PERSONS 
I.  In  General — Parties  to  Actions  by  the  Firm  ^ 


MASON  V.  ELDRED. 

(Supreme  Court  of  the  United  States,  1SC7.     6  Wall.  231,  18  L.  Ed.  7S3.) 
See  ante,  p.  157,  for  a  report  of  the  case. 


KELL  V.  NAINBY. 
(Court  of  King's  Bench,  1S29.    10  B.  &  C.  20.) 

Assumpsit  for  business  done  as  an  attorney.  Plea,  general  issue. 
At  the  trial,  before  Gaselee,  J.,  at  the  summer  assizes  for  the  county 
of  Sussex,  1829,  it  appeared  that  the  action  was  brought  to  recover 
the  amount  of  the  plaintiff's  bill,  for  business  done  for  the  defendant 
in  the  years  1827  and  1828.  The  plaintiff  called  his  son,  WL  P.  Kell. 
to  prove  that  the  business  was  done.  He  stated  that  he  was  not  in 
partnership  with  his  father;  that  he  acted  as  his  clerk,  and  received 
a  salary  in  that  character.  It  appeared,  however,  that  "Kell  and  Son" 
was  on  the  door  of  the  plaintiff's  office;  and  that,  during  the  time 
the  business  mentioned  in  the  bill  was  in  progress,  letters  relating  to 
the  business  were  addressed  to  the  defendant  by  the  plaintiff,  signed 
"Kell  and  Son,"  and  that  the  defendant  had  always  addressed  his  let- 
ters to  Kell  and  Son.  It  was  contended,  on  this  evidence,  that  the 
son  ought  to  have  been  made  a  co-plaintiff  with  his  father.  The 
learned  judge  told  the  jury  that,  if  the  plaintiff  and  his  son  had  been 
sued  by  the  defendant  for  a  debt  or  for  negligence,  there  was  ample 
evidence  to  charge  the  son,  on  the  ground  that  he  had  suffered  himself 
to  be  held  out  as  a  partner.  Here  the  plaintiff  sued  as  a  creditor  of 
the  defendant.  It  was  perfectly  immaterial  to  the  debtor  that  the 
son  had  held  himself  out  as  a  partner,  if  in  fact  he  was  not  one,  and 
had  no  claim  upon  the  defendant.  The  son  had  sworn  that  he  was 
not  in  fact  a  partner  with  his  father  during  the  time  the  business  was 
done  for  the  defendant,  and,  if  they  believed  the  son's  testimony,  the 
plaintiff  was  entitled  to  a  verdict.  The  jury  having  found  for  the 
plaintiff. 

Gurney  now  moved  for  a  new  trial.  The  case  was  not  properly 
submitted  to  the  jury.  It  should  have  been  left  to  them,  upon  the  evi- 
dence, to  consider  whether  the  father  and  the  son  were  or  were  not 
jointly  employed  by  the  defendant.    There  was  ample  evidence  of  this 

1  For  a  discussion  of  principles,  see  Giliuore  on  Partnership,  §^  173-17S. 


316  ACTIONS   BETWEEN  PARTNERS  AND  THIRD    PERSONS 

being  a  joint  employment.  No  arrangement  between  the  father  and  son 
could  alter  the  nature  of  that  employment.  It  was  wholly  immaterial 
whether  the  father  and  son  were  jointly  interested  in  profit  and  loss, 
provided  the  defendant  employed  the  two.  He  never  knew  that  they 
were  not  in  fact  partners.  The  plaintiff,  by  his  letters,  represented 
that  they  were.  It  is  quite  clear  that  the  two  would  have  been  liable 
in  an  action  for  negligence. 

Lord  TicNTERDEN,  C.  J.  The  question  was  properly  submitted  to 
the  jury.  If  the  son  of  the  plaintiff  spoke  the  truth,  he  was  not  a  part- 
ner with  his  father.  The  effect  of  the  evidence  might  be  to  show  that 
both  the  father  and  son  would  have  been  jointly  liable  for  negligence; 
but  that  would  be  on  the  ground,  not  that  they  were  actual  partners, 
but  that  they  held  themselves  out  as  such  to  defendant. 

Parke,  J.  A  party  with  whom  the  contract  is  actually  made  may 
sue  without  joining  others  with  whom  it  is  apparently  made.  Here 
there  was  no  evidence  to  show  that  the  son  was  actually  employed  by 
the  defendant.  The  son  proved  that  he  was  not  an  actual  partner ; 
and  although  he  may  have  appeared  to  the  defendant  to  have  been  a 
partner,  unless  he  were  a  party  to  the  contract  for  the  breach  of  which 
the  action  was  brought,  he  need  not  join  in  such  action.  Here  he  was 
no  party  to  that  contract. 

Rule  refused. 


BROOKE  v.  WASHINGTON. 

(Supreme  Court  of  Virginia,  1851.    8  Grat.  248,  56  Am.  Dec.  142.) 

MoNCURE,  J.^  The  suit  in  which  the  decree  from  which  the  appeal 
in  this  case  was  taken  was  rendered  was  a  suit  brought  to  recover  of 
dormant  partners  a  debt  for  which  the  ostensible  partners  had  given 
their  bonds,  but  which  the  latter  became  unable  to  pay  by  reason  of 
their  insolvency.  The  following  appear  to  be  the  facts  of  the  case, 
so  far  as  it  is  material  to  state  them:  In  1841  Perdue,  Nichols, 
Brooke,  and  Jewell  entered  into  partnership  for  carrying  on  the  iron- 
making  business  in  the  county  of  Jefferson,  and  accordingly  carried 
it  on  for  about  two  years.  Perdue  and  Nichols  resided  in  the  county 
of  Jefferson,  and  were  the  ostensible  partners.  Brooke  and  Jewell 
were  nonresidents  of  the  state,  and  their  names  did  not  appear  in  the 
style  of  the  firm,  which  was  "Perdue,  Nichols  &  Co."  It  does  not  ap- 
pear to  have  been  known  to  the  appellee,  nor  generally,  that  Brooke 
and  Jewell  were  partners;  and  it  was  proved  that  several  suits  were 
brought  by  different  attorneys  against  Perdue  and  Nichols  alone,  as 
constituting  the  firm  of  Perdue,  Nichols  &  Co.,  though  it  does  not  ap- 
pear that  there  was  any  designed  concealment  of  the  fact  that  Brooke 
and  Jewell  were  members  of  the  firm.  In  May,  1841,  the  appellee, 
Washington,  sold  and  conveyed  to  Perdue  and  Nichols  843  acres  of 

2  Part  of  the  opinion  Is  omitted. 


IN    GENERAL — PARTIES   TO    ACTIONS    BY   THE    FIRM  317 

land  in  Jetfcrson  for  $6,200,  of  which  $1,100  was  paid  at  the  time,  and 
for  the  balance  they  gave  their  bonds,  payable  in  five  annual  install- 
ments, and  gave  a  deed  of  trust  on  the  land  to  secure  the  payment  of 
the  same.    The  cash  payment  was  made  by  the  check  of  Perdue,  Nich- 
ols &  Co.,  and  entries  were  made  on  their  books,  bearing  the  same  date 
with  the  deeds  and  bonds,  to  wit,  the  1st  of   May,   1841,  crediting 
Washington  in  account  with  the  firm  for  $6,200,  the  purchase  money 
of  the  land,  and  debiting  him  in  the  same  account  with  $1,100,  the 
cash  payment.    During  the  operations  of  the  partnership,  for  some  18 
months  after  the  purchase,  about  5,000  cords  of  wood  were  cut  from 
the  land  and  used  in  the  said  operations.     Portions  of  the  land  were 
also  rented  out,  and  the  rents  were  received  by  the  firm  and  entered 
on  their  books.    Brooke  had  access  to  the  books  and  looked  into  them, 
though  it  did  not  appear  that  he  ever  examined  any  account  but  his 
own.     In   December,   1842,  Perdue  and  Nichols,  in  their  individual 
names  and  by  the  partnership  name  of  Perdue,  Nichols  &  Co.,  executed 
a  deed  of  trust  to  secure  the  debts  of  the  firm  which  are  enumerated. 
Three  parcels  of  land,  besides  other  property,  were  embraced  in  the 
deed ;   but  the  land  bought  of  Washington  was  not  included,  and  the 
debt  due  to  him  was  not  mentioned  in  the  deed.     In  March,  1843, 
Washington  filed  his  bill,  charging  that  a  large  portion  of  the  value  of 
the  land  consisted  in  the  timber  and  trees  standing  on  it ;   that  the  ob- 
ject of  the  purchasers  in  buying  it  was  to  cut  off  the  timber  for  fuel 
to  supply  their  iron  works;  that  they  had  cut  down  and  carried  off  the 
timber  and  trees  on  the  land,  until  it  was  of  very  Uttle  value;   that  he 
had  no  other  security  for  the  purchase  money  than  the  land  itself. 
under  the  deed  of  trust;    that  the  partnership  had  become  insolvent 
and  made  a  general  assignment  of  their  effects  for  the  benefit  of  their 
creditors,  and  his  only  mode  of  redress  to  recover  the  balance  due  him 
was  to  charge  the  same  on  the  individual  partners;   and  that  Brooke 
was  a  partner  at  the  time  of  the  sale,  though  he  was  then  ignorant 
of  the  fact,  the  name  of  Brooke  being  withheld  from  the  public — and 
seeking  to  charge  said  Brooke  as  a  member  of  the  firm  for  the  bal- 
ance of  said  debt.     Afterwards  an  amended  bill  was  filed,  charging 
"that  Jewell  also  was  a  secret  partner  of  the  firm,  and  seeking  to  make 
him  liable.     Of  all  the   defendants,   Brooke  alone   filed   an  answer. 
He  placed  his  defense  upon  the  ground  that  the  purchase  was  not  made 
on  account  or  upon  the  credit  of  the  firm,  or  by  his  authority,  and 
was  not  within  the  scope  of  the  partnership,  and,  in  the  absence  of  any 
knowledge  on  the  subject  at  the  time  it  was  made,  "presumes  it  was 
by  Perdue  and  Nichols,  with  the  view  of  bringing  it  into  the  firm  as 
a  part  of  their  share  of  the  capital";    and  he  also  objected  to  the 
jurisdiction  of  the  court. 

The  circuit  court,  being  of  opinion  that  Brooke  and  Jewell  were 
secret  members  of  the  firm,  that  that  fact  was  unknown  to  the  appel- 
lee at  the  time  of  the  sale,  that  the  land  was  purchased  for  partnership 
purposes,  that  the  chief  value  thereof  consisted  in  its  timber  required 


318  ACTIONS    BETWEEN  PARTNERS   AND   THIRD    PERSONS 

as  fuel  for  the  iron  works,  and  therefore  that  such  purchase  was  a 
transaction  in  the  ordinary  course  of  business  in  conducting  the  iron 
works,  rendered  a  decree  against  all  the  parties  for  the  balance  due  to 
Washington,  after  crediting  the  proceeds  of  the  sale  of  the  land.  From 
that  decree  the  appeal  in  this  case  was  taken,     *     *     * 

In  the  case  now  under  consideration  the  evidence  is  conclusive  that 
the  land  was  bought  for  partnership  purposes,  paid  for  in  part,  and 
intended  by  the  purchasers  to  be  paid  for  entirely,  out  of  partnership 
funds,  and  applied  to  partnership  purposes.  The  purchase  was  with- 
in the  scope  of  the  partnership,  for  the  operations  of  the  furnace  could 
not  be  carried  on  without  fuel ;  and  the  best  mode  of  obtaining  it  was 
to  purchase  land  in  the  neighborhood  well  covered  with  wood,  as  was 
the  land  of  Washington.  All  the  partners  are  therefore  bound  for  the 
purchase  money  on  the  authority  of  the  cases  before  cited.    *    *    * 

The  court  is  therefore  of  opinion  to  afifirm  the  decree. 

Decree  affirmed. 


FORSTER  et  al.  v.  LAWSON. 

(Court  of  Common  Pleas,  1826.    3  Bing.  452.) 

Case  for  libel.  Plaintiffs  were  bankers  in  partnership,  and  the  libel 
complained  of  was  that  they  had  suspended  their  payments.  General 
demurrer  and  joinder. 

Best,  C.  J.^  An  objection  has  been  made  to  the  declaration,  that 
the  action  has  been  brought  by  three  persons  jointly,  and  that  they 
could  not  properly  join  in  such  an  action.  The  general  rule  of  law 
is,  as  laid  down  in  Smith  v.  Cooker,  Cro.  Car.  513,  namely,  that  where 
several  persons  are  charged  with  being  jointly  concerned  in  a  mur- 
der, each  of  them  must  bring  his  separate  action  for  it,  and  the  rea- 
son is,  that  they  have  no  joint  interest  to  be  affected  by  the  slander. 
Wher?,  however,  two  persons  have  a  joint  interest  affected  by  the 
slander,  they  may  sue  jointly,  and  the  case  of  Cooke  v.  Batchelor,  3 
B.  &  P.  150,  is  not  the  first  case  which  has  determined  this  point. 
*  *  *  It  has  been  said  that,  notwithstanding  the  judgment  against 
the  defendant  in  this  action,  if  either  of  the  plaintiffs  has  sustained 
any  separate  damage,  he  may  still  maintain  a  separate  action.  I  can- 
not see  how  there  can  be  any  separate  damage.  The  business  injured 
is  the  joint  business,  and  the  libel  only  affects  the  plaintiffs  through 
their  business.  If,  however,  a  co-partnership  be  libelled,  and  the  libel 
contains  something  which  particularly  affects  the  character  of  one  of 
that  firm,  I  think  a  joint  action  may  be  maintained  against  the  libeller, 
who  would  have  less  reason  to  complain  of  such  proceedings  than  he 
would  have  if  each  partner  brought  a  separate  action  for  the  injury 
done  to  the  firm. 

8  Part  of  opinion  is  omitted  and  statement  of  facts  abridged. 


PARTIES   TO    ACTIONS    AGAINST   THE   FIRM 


319 


Another  objection  raised  by  the  defendant's  counsel  is  that  the  plain- 
tiffs have  not  stated  the  proportion  of  interest  which  each  respectively 
had  in  their  joint  business.  It  is  not  necessary  for  them  to  do  so: 
with  their  several  proportions  the  defendant  has  nothing  to  do.  Any 
compensation  they  may  recover  will  belong  to  them  generally,  and 
it  is  nothing  to  the  defendant  how  it  may  be  divided  among  them. 
*  *  *  It  appears  to  me  that  the  declaration  is  unobjectionable,  and 
that  the  plaintiffs  are  entitled  to  judgment. 


II.  Parties  to  Actions  Against  the  Firm  * 


GUIDON  V.  MARY  ROBSON. 
(Court  of  King's  Bench,  1809.     2  Camp.  302.) 

Action  by  the  drawer  and  payee  of  a  bill  of  exchange  against  the 
acceptor.  The  declaration  stated  that  the  plaintiff  drew  the  bill  by 
the  name,  style,  and  firm  of  Guidon  &  Hughes.  It  appeared  that  the 
plaintiff  traded  under  the  firm  name  of  Guidon  &  Hughes,  mentioned  in 
the  bill;  that  he  has  no  partner  who  participates  in  the  profits  of  his 
business ;  but  that  he  has  a  clerk  of  the  name  of  Hughes,  at  a  fixed 
salary,  who  is  held  out  to  the  world  as  his  partner,  and  is  generally 
considered  as  such. 

The  Attorney-General  contended  that  Hughes  ought  to  have  been 
joined  as  a  partner  in  this  action.  The  defendant  contracted,  not  with 
the  plaintiff  singly,  but  jointly  with  him  and  Hughes.  She  came  pre- 
pared to  show  that  she  never  accepted  any  bill  drawn  individually  by 
Guidon.  She  might  have  a  good  defense  to  an  action  on  a  bill  drawn 
by  the  partnership ;  but  she  had  no  reason  to  imagine  that  the  bill  de- 
clared upon  was  of  that  description.  Suppose  she  had  a  debt  due  to 
her  from  the  firm,  how  could  she  set  it  off  in  this  action?  Payment 
to  Hughes  would  clearly  have  been  a  good  satisfaction  of  the  bill ; 
and  a  release  from  him  would  have  extinguished  the  debt.  He  was 
liable  to  Guidon's  creditors ;  and  as  to  all  those  who  dealt  with  Guid- 
on, he  was  a  contracting  party  as  much  as  if  there  had  been  an  equal 
participation  of  profit  and  loss  between  the  two. 

Park,  contra,  insisted  that  the  case  stood  exactly  the  same  as  if 
there  had  been  no  such  person  as  Hughes  in  rerum  natura.  The 
names  in  a  firm  are  quite  immaterial.  Firms  sometimes  continue  un- 
changed for  generations,  and  when  the  names  of  the  real  partners  no 
longer  correspond  with  any  of  those  ostensibly  used.  Persons  who 
deal  with  the  firm,  therefore,  contract  only  with  those  really  composing 

*  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  179-181. 


320  ACTIONS    BETWEEN  PARTNERS   AND   THIRD    PERSONS 

the  partnership.  It  is  very  common  for  men,  trading  by  themselves, 
to  add  "&  Co."  to  their  names,  and  if  instead  they  added  the  name 
of  another  person  who  had  no  share  in  the  business,  the  legal  effect 
must  be  the  same.  The  plaintiff  alone  had  the  beneficial  interest  in 
the  bill,  and  he  had,  therefore,  a  right  to  sue  upon  it  by  himself.  The 
defendant  was  not  injured.  The  declaration  gave  her  full  notice  of 
the  bill  on  which  the  action  was  brought;  and  if  she  had  a  set-off, 
•she  might  give  it  in  evidence. 

Lord  Ellenborough.  There  being  such  a  person  as  Hughes,  I  am 
clearly  of  opinion  that  he  ought  to  have  been  joined  as  a  partner.  He 
is  to  be  considered  in  all  respects  a  partner  as  between  himself  and 
the  rest  of  the  world.  Persons  in  trade  had  better  be  very  cautious 
how  they  add  a  fictitious  name  to  their  firm,  for  the  purpose  of  gain- 
ing credit.  But  where  the  name  of  a  real  person  is  inserted,  with  his 
own  consent,  it  matters  not  what  agreement  there  may  be  between  him 
and  those  who  share  the  profit  and  loss.  They  are  equally  responsible, 
and  the  contract  of  one  is  the  contract  of  all.  In  this  case,  the  decla- 
ration states  that  the  defendant  promised  to  pay  the  money  specified 
in  the  bill  to  the  plaintiff  only,  whereas  she  promised  to  pay  it  to  the 
plaintiff  jointly  with  another  person.    The  variance  is  fatal. 

Plaintiff"  nonsuited. 


III.  Effect  of  Changes  in  Firm — Admission  of  New  Member  " 


WOLFF  v.  MADDEN  et  al. 
(Supreme  Court  of  Washington.  1893.    6  Wash.  514,  33  Pac.  975.) 
See  ante,  p.  174,  for  a  report  of  the  case. 


HICKS  et  al.  v.  WYATT  et  al. 
(Supreme  Court  of  Arkansas,  1861.    23  Ark.  56.) 
See  ante,  p.  175,  for  a  report  of  the  case. 


ARNOLD  et  al.  v.  NICHOLS. 
(Court  of  Appeals  of  New  York,  1876.    64  N.  Y.  117.) 
See  ante,  p.  176,  for  a  report  of  the  case. 

B  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  182-185. 


EFFECT  OF  CHANGES  IN   FIRM — ADMISSION  OF  NEW  MEMBEB        321 

HUGHES  V.  GROSS  et  al. 

(Suoreme  Judicial  Court  of  Massachusetts,  189G.    IGG  Mass.  CI,  43  N.  E.  lO^il, 
[i'2  L.  R.  A.  620,  55  Am.  St.  Rep.  375.) 

Holmes,  J."  This  is  an  action  of  contract  for  refusing  to  employ 
the  plaintiff  a  second  year.  The  plaintiff  had  a  verdict,  and  the  case 
is  here  on  exceptions.  The  original  contract  was  in  writing,  and  was 
made  with  two  partners.  Gross  and  Strauss,  for  one  year  from  April 
25,  1892,  with  a  conditional  right  of  renewal  on  the  side  of  the  plain- 
tiff for  one  year  more.  On  November  1,  1892,  during  the  first  year  of 
the  plaintift''s  employment,  Strauss  died,  and  the  business  was  carried 
on  by  Gross. 

The  first  question  raised  by  the  exceptions  is  whether  Strauss'  death 
ended  the  contract.  At  the  end  of  December  the  plaintiff  received  a 
notice  from  Gross  that  she  would  not  be  employed  beyond  the  first 
year,  stating  causes  of  dissatisfaction.  There  was  an  answer  from 
the  plaintiff',  and  a  reply  by  Gross.  Exceptions  were  taken  to  the 
admission  of  the  plaintiff's  letter  in  evidence,  and  to  the  exclusion  of 
evidence  of  other  causes  of  dissatisfaction  besides  those  mentioned  in 
the  notice.  On  February  1,  1893,  the  defendant  Sommers  became  a 
partner  in  the  business  with  Gross,  the  new  firm  taking  the  assets  anc 
assuming  the  liabilities  of  the  old  one.  Thereafter  the  plaintiff  was 
paid  out  of  the  funds  of  the  new  firm,  and,  according  to  the  plaintiff's 
testimony,  was  referred  to  Sommers  for  further  discussion  of  her  re- 
lations with  the  firm,  and  had  several  interviews  with  him,  in  which 
he  wanted  to  terminate  the  contract.  Another  exception  is  to  the  re- 
fusal to  direct  a  verdict  for  Sommers. 

We  are  of  opinion  that  it  could  not  be  ruled  as  matter  of  law,  that 
the  contract  of  service  was  dissolved  by  the  death  of  a  partner.  We 
have  no  occasion  to  criticise  the  decisions  in  some  of  our  states  and 
in  England  and  Scotland,  where  an  opposite  result  was  reached  by  a 
majority  of  the  judges  with  reference  to  different  kinds  of  business 
from  the  present,  except  to  remark  that  the  argument  put  forward  in 
Scotland  and  elsewhere,  that  the  only  contracting  party  was  the  firm, 
and  that  the  firm  had  ceased  to  exist,  does  not  agree  with  the  common 
law.  Tasker  v.  Shepherd,  6  Hurl.  &  N.  575 ;  Hoey  v.  MacEwan,  5 
Ct.  Sess.  Cas.  (3d  series)  814,  815;  Griggs  v.  Swift,  82  Ga.  392,  9 
S.  E.  1062,  5  L.  R.  A.  405,  14  Am.  St.  Rep.  176;  Greenburg  v. 
Early,  4  Misc.  Rep.  99,  23  N.  Y.  Supp.  1009.  The  common  law  doe? 
not  know  the  firm  as  an  entity.  Hallowell  v.  Bank,  154  Mass.  359, 
363,  28  N.  E.  281,  13  L.  R.  A.  315.  A  contract  with  a  firm  is  a 
contract  with  the  members  w^ho  compose  it.  A  joint  contract  to  em- 
ploy the  plaintiff  is  not  ended  necessarily  by  the  death  of  one  of  the 
contractors  (Martin  v.  Hunt,  1  Allen,  418),  and  there  is  no  universal 

•  Part  of  the  opinion  is  omitted. 
Gilm.Part. — 21 


322  ACTIONS    BETWEEN  PARTNERS  AND  THIRD    PERSONS 

necessity  that  death  should  have  a  greater  effect  when  the  joint  con- 
tractors are  partners.  Fereira  v.  Sayres,  5  Watts  &  S.  (Pa.)  210, 
40  Am.  Dec.  496.  If  the  death  naturally  would  put  an  end  to  the 
business,  as  it  so  frequently  does,  very  possibly  it  might  end  the  em- 
ployment. We  have  no  need  to  consider  what  would  be  the  result 
if  in  fact  no  further  business  was  done,  except  to  wind  up  the  affairs 
of  the  firm,  as  was  the  case  in  Griggs  v.  Swift,  supra.  But  this  busi- 
ness went  on  without  a  break,  and  both  parties  seemed  to  have  as- 
sumed that  the  plaintiff's  contract  was  not  ended  by  the  death  of 
Strauss. 

But  the  foregoing  suggestions  are  not  enough  to  lay  a  foundation 
for  the  liability  of  Sommers,  even  assuming  that  there  was  evidence 
warranting  the  inference  that  he  was  content  to  be  bound  unless  Gross 
escaped,  and  that  he  made  an  oral  contract  on  the  terms  of  the  writ- 
ten agreement.  The  declaration  is  on  the  written  instrument,  and  the 
refusal  to  direct  a  verdict  for  Sommers  must  be  taken  as  made  either 
with  reference  to  the  pleadings,  in  which  case  Sommers  must  be 
shown  to  be  a  party  to  the  instrument,  or  else  on  the  evidence,  irre- 
spective of  the  pleadings,  in  which  case,  unless  he  is  to  be  taken  to 
have  signed  the  writing,  the  statute  of  frauds  would  be  a  defense  un- 
der our  decisions.  Hill  v.  Hooper,  1  Gray,  131 ;  Freeman  v.  Foss, 
145  Mass.  361,  14  N.  E.  141,  1  Am.  St.  Rep.  467.  It  appears  to  us 
that  this  difficulty  cannot  be  answered,  except  by  attributing  an  over- 
subtle  meaning  to  the  firm  signature  and  to  the  acts  of  the  new  part 
ners.  We  cannot  read  "Gross  and  Strauss"  as  not  only  meaning  al\ 
those  who  then  were  members  of  the  firm,  but  also  as  purporting  to 
name  in  advance  all  persons  who  might  become  members  pending  the 
contract. 

It  follows  that  a  verdict  for  Sommers  should  have  been  directed. 
But  there  seems  to  be  no  reason  why  the  superior  court,  if  it  sees  fit, 
should  not  allow  the  plaintiff  to  discontinue  as  against  Sommers,  and 
to  take  a  judgment  against  the  other  defendant,  Gross.  Ridley  v. 
Knox,  138  Mass.  83,  86;  Fifty  Associates  v.  Howland,  5  Gush.  214. 
*     *     * 

Exceptions  sustained. 


IV.  Retirement  of  Old  Member  ' 


MOTLEY  V.  WICKOFF. 

^Supreme  Ck)urt  of  Michigan,  1897.    113  Mich.  231,  71  N.  W.  520.) 
See  ante,  p.  177,  for  a  report  of  the  case. 
7  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  18G-188. 


BETLBEMENT  OF  OLD  MEMBBB 

McAREAVY  v.  MAGIRL. 
(Supreme  Court  of  Iowa,  1904.    123  Iowa,  G05.  09  N.  W.  193.) 
See  ante,  p.  179,  for  a  report  of  the  case. 


323 


PRESTON  V.  GARRARD. 

(Supreme  Court  of  Georgia,  1904.     120  Ga.  C89,  48  S.  E.  118,  102  Am.  St 

Rep.  124.) 

See  ante,  p.  181,  for  a  report  of  the  case. 


LYTH  V.  AULT  &  WOOD. 

(Court  of  Exchequer,  1852.    7  Exch.  GG9.) 

Action  for  goods  sold  and  delivered  by  plaintiff  to  defendants.  De- 
fendant Ault  pleaded  that  the  goods  were  sold  to  defendants  as  part- 
ners; that  afterwards  defendants  dissolved  their  partnership;  that 
Wood  continued  the  business  alone ;  that  it  was  agreed  between  plain- 
tiff and  defendants  that  in  consideration  of  il2  part  payment  on  said 
indebtedness  and  the  promise  by  Wood  to  assume  and  pay  the  balance 
the  plaintiff"  would  release  Ault  from  further  liability  and  look  only  to 
Wood.  Verdict  for  defendant  on  the  plea.  Motion  for  rule  on  de- 
fendant to  show  cause  why  judgment  for  plaintiff  should  not  be  en- 
tered on  the  plea  non  obstante  veredicto. 

Parker,  B.*  *  *  *  The  principle  which  governs  this  case  is  to 
be  found  expounded  in  Thompson  v.  Percival.  It  is  clear  that  where 
there  is  an  accord  and  satisfaction,  by  the  debtor  agreeing  to  give 
something  totally  different  in  its  nature  from  the  debt,  and  which  the 
creditor  agrees  to  accept  in  satisfaction  of  the  debt,  the  court  cannot 
inquire  into  the  value  of  that  which  is  the  subject-matter  of  the  new 
agreement,  and  therefore  there  is  nothing  to  prevent  the  parties  from 
agreeing  that  a  horse,  or  bill  of  exchange,  or  any  other  commodity, 
shall  be  given  in  satisfaction  of  a  larger  demand.  There  is  a  very 
strong  case  to  be  found  in  Dyer,  of  Andrew  v.  Boughey,  Dyer,  75a, 
where,  to  a  declaration  for  delivering  373  pounds  of  bad  wax  upon 
an  assumpsit  for  400  pounds  of  good  wax,  stating  half  the  price  to 
have  been  paid  in  hand,  the  rest  to  be  paid  upon  a  day  agreed,  a  plea 
of  20  pounds  of  wax  given  and  accepted  in  satisfaction  was  held  good. 
The  court  proceeded  upon  the  ground  that  they  were  not  at  liberty 
to  go  into  the  value  of  the  consideration  of  the  new  agreement,  pro- 
vided the  thing  differed  from  the  debt  itself.  The  law  leaves  the  par- 
ties to  their  bargain.    Now  it  cannot  be  doubted  that  the  sole  security 

8  The  opinions  of  Pollock,  C.  B.,  Adderson,  B.,  and  part  of  the  opinion  of 
Parker,  B.,  are  omitted.    The  statement  of  facts  is  rewritten. 


324  ACTIONS    BETWEEN   PARTNERS  AND   THIRD    PERSONS 

of  one  of  two  joint  debtors  may  be  more  beneficial  than  the  joint  re- 
sponsibility of  both.  In  the  latter  case  you  are  not  entitled  to  sue  one 
with  safety,  for  the  defendant  may  plead  in  abatement  the  nonjoinder 
of  his  co-contractor.  In  case  of  the  bankruptcy  of  one  of  the  partners, 
there  would  also  be  a  difference.  In  the  case  put  by  my  Lord  Chief 
Baron  of  two  debtors,  where  one  is  a  rich  old  man  and  the  other  is 
young  and  without  property,  it  might  be  much  more  advantageous 
to  the  creditor  to  have  his  sole  remedy  against  the  former,  for  he  would 
have  the  security  of  the  personal  and  real  estate  of  the  rich  debtor, 
which  he  would  not  have  at  law  in  case  the  old  man  were  to  die  first. 
Where  there  is  more  than  one  debtor,  the  creditor's  remedy  is  different. 
There  is,  therefore,  no  doubt  that  the  thing  substituted  is  altogether 
different  from  the  original  debt.  In  Thompson  v.  Percival  it  is  said 
by  the  Court  of  King's  Bench  that  in  the  case  of  Lodge  v.  Dicas  the 
difference  between  the  joint  liability  of  two  and  the  separate  liability 
of  one  does  not  appear  to  have  been  brought  under  the  consideration 
of  the  court.  The  case  of  Lodge  v.  Dicas  rested  upon  a  totally  dif- 
ferent ground  from  the  present,  for  there  the  consideration  for  the 
discharge  of  the  one  defendant  (Dicas)  was  the  allowing  the  other 
partner  to  collect  the  partnership  debts,  and  the  court  held  that,  as 
there  was  no  evidence  that  that  fact  was  known  to  the  plaintiffs,  there 
was  no  consideration  whatever  for  the  plaintiffs'  promise ;  but  the 
point  which  now  arises  was  not  taken  by  the  counsel  or  acted  upon 
by  the  court.  This  point,  however,  was  much  considered  in  Thompson 
V.  Percival,  and  the  decision  there  was  wholly  irrespective  of  the  fact 
that  a  bill  had  been  given.  As  I  am,  therefore,  clearly  of  opinion  that 
the  sole  responsibility  of  one  of  several  joint  debtors  is  different  from 
their  joint  responsibility,  the  plea  discloses  a  sufficient  consideration 
for  the  plaintiff's  promise  to  exonerate  this  defendant  from  the  residue 
of  the  debt,  and  affords  a  good  answer  to  the  action.  ♦  ♦  ♦ 
Rule  refused. 


V.  Death  of  Member* 


ANDREWS'  HEIRS  v.  BROWN. 

(Supreme  Court  of  Alabama,  1852.    21  Ala.  437,  56  Am.  Dec.  252.) 
See  ante,  p.  149,  for  a  report  of  the  case. 


BASSETT  et  al.  v.  MILLER. 
(Supreme  Court  of  Michigan,  1878.    39  Mich.  133.) 
See  ante,  p.  151,  for  a  report  of  the  case. 

»  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  189. 


DEATH    OF   MEMBER  325 

ADAMS  V.  HACKETT. 

(Supreme  Court  of  New  Hampshire,  1853.    27  N.  II.  2S9,  59  Am.  Dec.  376.) 
See  ante,  p.  152,  for  a  report  of  the  case. 


STEARNS  V.   HOUGHTOM. 

(Supreme  Court  of  Vermont,  ISGG.     38  Vt   584.) 

PiERPOiNT,  C.  J.^"  This  is  an  action  of  trover,  brought  to  recover 
the  value  of  two  notes  executed  by  one  Michael  Sanford. 

From  the  facts  reported  by  the  referee  it  appears  that  prior  to  the 
15th  day  of  April.  1S58,  the  plaintiff  and  one  Goodell  were  copartners 
in  the  business  of  running  a  line  of  stages;  that  on  the  said  loth  of 
April  they  sold  out  their  line,  with  a  part  of  the  property  they  had 
used  in  the  business,  to  said  Sanford,  and  that  the  notes  sued  for  in 
this  action  were  a  part  of  the  consideration  given  by  said  Sanford  for 
such  property;  that,  notwithstanding  these  notes  were  taken  payable 
to  Goodell  or  bearer,  they  were  the  joint  property  of  the  plaintiff  and 
said  Goodell,  as  such  copartners;  that  their  copartnership  business 
and  accounts  were  never  settled  between  themselves,  or  the  copartner- 
ship dissolved,  until  it  was  dissolved  by  the  death  of  said  Goodell. 
When  Goodell  died  these  notes  were  in  his  possession,  and  afterwards 
went  into  the  possession  of  the  defendant  as  his  administrator.  Sub- 
sequently the  plaintiff  demanded  the  notes  of  the  defendant,  who  re- 
fused to  deliver  them  to  him,  claiming  the  right  to  hold  them  for  the 
benefit  of  Goodell's  estate. 

It  is  an  elementary  principle  that  on  the  death  of  one  copartner  the 
right  to  the  possession  and  control  of  the  partnership  effects  vests  in 
the  survivor.  He  takes  them,  subject  to  the  right  and  duty  of  settling 
and  closing  up  the  copartnership  affairs.  He  alone  has  the  right  of 
disposing  of  the  property  and  of  collecting  and  paying  the  debts.  All 
actions  to  enforce  the  claims  of  the  company  must  be  brought  in  his 
name  as  survivor.  The  right  of  the  survivor  to  the  copartnership 
effects  does  not  in  any  respect  depend  upon  the  question  whether  or 
not,  upon  a  settlement  of  the  business,  there  will  be  funds  m  his  hands 
belonging  to  the  estate  of  the  deceased  copartner.  If  the  company 
is  solvent,  there  necessarily  will  be. 

If  the  representative  of  the  deceased  partner  has  reason  to  fear 
that  the  copartnership  funds  will  be  misapplied  or  squandered,  the  aid 
of  the  court  of  chancery  may  be  invoked  to  prevent  such  a  result ;  but 
a  court  of  law  has  no  power  to  interfere  in  that  respect. 

It  is  insisted  that  the  plaintiff  ought  not  to  recover,  because  the 
said  Goodell  had  agreed  that  whatever  he  owed  to  said  Sanford  might 

10  Part  of  the  opinion  is  omitted. 


326  ACTIONS    BETWEEN   PARTNERS   AND   THIRD    PERSONS 

be  applied  upon  said  notes.  What  might  have  been  the  effect  if  the 
application  had  actually  been  made  in  Goodell's  lifetime,  it  is  not  neces- 
sary now  to  determine.  It  was  an  agreement  to  apply  the  company 
effects  in  payment  of  his  individual  debt;  but,  not  having  been  car- 
ried out  by  Goodell,  it  is  quite  clear  that  the  survivor  is  not  bound  by 
the  arrangement.     *     *     * 

Upon  examining  carefully  the  report  of  the  referee,  we  are  unable 
to  find  therein  any  sufficient  reason  why  the  plaintiff  is  not  entitled 
to  recover. 

The  pro  forma  judgment  of  the  county  court  is  reversed,  and  judg- 
ment rendered  for  the  plaintiff  for  the  amount  reported  by  the  referee, 
with  interest  thereon  and  his  cost. 


yi.  Bankruptcy  and  Insolvency** 


OGDEN  v.  ARNOT. 

(Supreme  Court  of  New  York,  1883.     29  Hun,  146.) 

The  firm  of  William  H.  Gregg  &  Co.  was  composed  of  William  H. 
Gregg,  who  conducted  the  business,  and  Henry  W.  Beadle,  who  was 
a  private  banker.  On  the  22nd  of  March,  1878,  Beadle,  being  insolv- 
ent, made  an  assignment  of  all  his  property  of  every  nature  to  Hall 
&  Gillett,  in  trust  for  the  payment  of  his  debts.  His  individual  prop- 
erty was  insufficient  to  pay  his  individual  debts. 

On  the  26th  of  March,  1878,  William  H.  Gregg,  in  the  firm  name, 
executed  a  chattel  mortgage  to  the  defendant,  Arnot,  upon  all  the 
stock  of  goods  of  the  firm  and  the  fixtures  in  their  store,  to  secure 
$8,070.61  and  interest  within  three  months,  the  mortgages  containing 
a  covenant  to  pay  that  sum  at  that  time.  This  sum  was  for  the  money 
loaned  to  the  firm  and  the  goods  sold  to  it.  The  firm  was  then  in- 
debted to  persons  other  than  Arnot.  The  inventory  and  schedule  of 
the  assignees  were  filed  about  April  21,  1878,  and  do  not  include  the 
interest  of  Beadle  in  the  said  firm.  In  April,  1878,  Gregg  commenced 
an  action  against  Hall  &  Gillett,  assignees,  alleging  the  partnership 
aforesaid,  and  the  assignment  by  Beadle  to  them,  and  asking  a  dissolu- 
tion of  the  partnership,  the  taking  of  an  account,  and  the  appointment 
of  a  receiver.  Hall  &  Gillett,  assignees,  appeared,  and  by  consent  of 
parties,  without  making  Beadle  a  party,  an  order  was  entered  May 
11,  1878,  appointing  the  present  plaintiff,  Ogden,  receiver  of  the  part- 
nership property  of  the  firm  with  the  usual  powers. 

On  the  16th  of  April,  1878,  Arnot  had  taken  possession  of  certain 
whiskey  belonging  to  the  said  firm,  by  virtue  of  his  chattel  mortgage, 

11  For  a  discus.sion  of  principles,  see  Gilmore  on  Partnership,  §§  190-193. 


BANKRUPTCY    AND   INSOLVENCY  327 

and  had  sold  the  same.  On  the  12th  of  May,  1878,  the  receiver  took 
possession  of  the  stock  other  than  the  whiskey,  and  while  he  was  in- 
ventorying it  on  the  22d  of  May,  1878,  Arnot  took  the  same  under  his 
chattel  mortgage  and  sold  it.  Thereupon  the  plaintiflF,  Ogden,  the  re- 
ceiver, in  September,  1878,  commenced  an  action  against  Arnot,  Hall 
&  Gillctt,  asking  for  relief  of  various  kinds,  but  substantially  seeking 
to  recover  for  the  property  taken  by  Arnot  under  his  chattel  mort- 
gage. Subsequently,  on  the  10th  of  January,  1881,  upon  a  stipulation 
of  Beadle  appearing  by  attorney,  and  on  motion  of  Ogden,  the  re- 
ceiver, without,  so  far  as  appears,  any  consent  of  Gregg,  the  plain- 
tiff in  the  action,  an  order  was  made  in  the  action  brought  by  Gregg 
against  Hall  &  Gillett,  assignees,  making  Beadle  a  party  defendant 
therein,  and  amending  the  summons  and  complaint  by  naming  him 
as  a  party  defendant,  and  amending  the  order  appointing  the  receiver 
by  adding  Beadle's  name  as  defendant. 

Thereafter,  on  the  10th  of  May,  1881,  the  referee,  before  whom  the 
present  action  was  tried,  reported  in  favor  of  the  plaintiff  Ogden 
against  Arnot  for  $3,437.16  and  interest,  the  value  of  the  stock,  not 
the  whiskey,  taken  by  Arnot.  On  such  report  judgment  was  entered 
and  the  defendant  Arnot  appeals. 

Learned,  P.  J.^^  It  is  not  necessary  to  consider  the  transaction  on 
which  the  debts  to  Arnot  arose,  because  it  is  plain  that  they  were  valid 
debts  owing  to  the  firm  by  him.  Nor  is  it  of  any  consequence  that 
the  mortgage  was  not  recorded.  The  assignment  by  Beadle  is  in  terms 
broad  enough  to  convey  all  his  property.  This  did  not  transfer  the 
corpus  of  the  partnership  property ;  but  only  his  share  of  what  would 
remain  after  the  debts  were  paid.  Menagh  v.  Whitwell,  52  N.  Y.  146, 
158,  11  Am.  Rep.  683.  It  does  not  appear  by  the  appeal  papers  wheth- 
er the  trust  was  for  the  payment  of  individual  debts,  or  of  all  his  debts. 
But  that  is  of  little  moment,  under  the  principle  just  cited.  See,  in 
this  connection,  Wilson  v.  Robertson,  21  N.  Y.  587. 

It  does  not  seem  to  be  disputed  by  either  party  to  this  controversy 
that  the  act  of  Beadle  in  assigning  his  whole  property,  including,  there- 
fore, whatever  might  belong  to  him  in  the  partnership,  worked  a  dis- 
solution of  the  partnership.  This  must  be  so;  because  one  partner 
cannot,  against  the  will  of  the  other,  introduce  a  new  member  into  the 
partnership.  Marquand  v.  New  York  Manf.  Co.,  17  Johns.  525; 
Story  on  Partn.  §  307  et  seq.  Where  there  is  a  voluntary  dissolu- 
tion and  no  agreement  as  to  the  settlement  of  the  partnership  business, 
it  is  plain  that  one  partner  has  the  same  power  as  the  other  in  that 
respect.  But  where,  as  in  this  case,  one  partner  has  broken  up  the 
partnership  by  his  assignment  in  insolvency,  it  is  plain  that  he  has  not 
the  right  to  manage  the  closing  up  of  the  business.  That  right  belongs 
to  the  other  party,  subject  of  course  to  the  control  of  the  court,  if  the 
right  is  abused.     Story,  Partn.  341.     Gregg,  therefore,  had  the  right 

12  Part  of  the  opinion  is  omitted. 


328  ACTIONS    BETWEEN   PARTNERS   AND  THIRD    PERSONS 

to  go  on  with  the  closing  up  of  the  business.  It  would  be  most  unrea- 
sonable if  the  insolvent  partner  should,  by  his  insolvency,  deprive  the 
solvent  partner  of  the  power  of  closing  up  the  partnership  for  the  pay- 
ment of  the  debts  of  which  he  is  liable.  Evans  v.  Evans,  9  Paige,  178; 
Robbins  v.  Fuller,  24  N.  Y.  570;  Van  Doren  v.  Horten,  19  Hun,  7. 

The  power  to  close  up  the  business  of  the  partnership  includes  nec- 
essarily the  power  to  sell  the  partnership  property,  to  collect  the  part- 
nership accounts,  and  to  pay  the  partnership  debts.  Certainly,  then, 
Gregg  could  have  sold  Arnot  the  stock  of  goods  and  the  whiskey ; 
could  have  received  the  price,  and  with  the  price  could  have  paid)  any 
partnership  debt.  The  general  principle,  except  as  it  may  be  modified 
by  a  bankrupt  law,  is  that  a  debtor  may  pay  one  creditor  before  he 
pays  another ;  even  that  he  may  pay  one  creditor  to  the  exclusion  of 
the  other.  And  it  seems  to  be  settled)  by  decisions  that,  on  the  disso- 
lution of  the  partnership  by  the  death  of  one  partner,  or  by  his  insol- 
vent assignment,  the  remaining  partner  may  exercise  that  same  prefer- 
ence of  one  partnership  creditor  over  the  other.  Egberts  v.  Wood,  3 
Paige,  517,  24  Am.  Dec.  236;  Loeschigk  v.  Addison,  4  Abb.  Prac. 
(N.  S.)  210.  Certainly  that  must  be  so,  unless  the  partnership  be  in- 
solvent ;  and  such  insolvency  is  not  shown  in  this  case.  If,  then,  the 
remaining  partner,  after  such  a  dissolution,  may  sell  the  partnership 
property,  and  may  apply  the  avails  to  such  partnership  debt  as  he 
chooses,  it  follows  that  he  may  directly  apply  the  partnership  prop- 
erty to  the  payment  of  a  partnership  debt.  The  equitable  right  which 
the  insolvent  partner  has,  or  which  the  representatives  of  a  deceased 
partner  have,  is  that  the  partnership  property  be  applied  to  the  pay- 
ment of  partnership  debts.  That  is  all ;  and  that  right  is  not  infringed 
by  the  turning  out  of  partnership  property  to  pay  a  partnership  debt. 

In  this  present  case,  however,  Gregg  mortgaged  the  property  to 
Arnot.  Now  Gregg  had  the  legal  title  to  the  property.  He  could  sell, 
and  convey,  and  transfer.  Why  could  he  not  mortgage?  Of  course 
a  mortgage  for  his  individual  and  antecedent  debt  might  be  invalid; 
because  it  would  be  paying  his  own  debt  out  of  partnership  property 
for  no  new  consideration.  But  I  do  not  see  why  he  may  not  mortgage 
partnership  property  for  a  partnership  debt.  The  learned  referee 
argues  that  he  cannot  mortgage,  because  he  cannot  create,  or  renew, 
a  partnership  obligation.  For,  he  says,  the  partner  thus  impairs  the 
right  of  the  creditors  to  payment  of  their  debts  without  delay.  But 
when  any  debtor  mortgages  his  property  to  secure  a  just  debt,  does 
he  impair  the  right  of  the  other  creditors  to  the  payment  of  their  just 
debts  without  delay?  Of  course  a  creditor  may  be  unable  to  collect 
his  debt 'out  of  mortgage  property,  and  yet  it  is  lawful  for  a  debtor  to 
mortgage  his  property  for  a  valid  debt,  and  to  make  the  mortgage  pay- 
able at  a  future  time.  We  must  remember  that  this  debt  to  Arnot 
was  a  debt  of  the  solvent  Gregg,  just  as  much  as  it  was  the  debt  of  the 
insolvent  Beadle.  All  that  Beadle  could  claim — all  that  the  creditors 
of  the  partnership  could  claim — was  that  Gregg  should  use  the  part- 


BANKKUPTCY    AND    INSOLVENCY  329 

nership  property  to  discharge  the  partnership  debts,  and  not  to  dis- 
charge his  individual  debts.    That  he  has  done. 

But  it  is  said  that  Gregg  signed  the  firm  name,  and  that  the  mortgage 
contained  a  covenant  to  pay.  When  Beadle  is  sued  on  that  covenant, 
the  dissolution  of  the  partnership  will  be  a  good  defence  to  the  action. 
But  the  mortgage  is  good  enough  as  a  transfer  of  the  property,  and 
probably  the  covenant  to  pay  is  binding  on  Gregg.  I  think  it  not 
accurate  to  say,  in  the  language  of  the  learned  referee,  that  on  the  dis- 
solution Gregg  immediately  became  the  trustee  of  the  firm  property 
for  the  benefit  of  the  firm  creditors,  or  for  Beadle  and  his  assignees. 
He  was  not  a  trustee,  but  was  the  owner  of  the  property.  Only  in 
paying  from  its  avails  the  debts  which  he  himself  owed,  it  was  his 
duty  first  to  pay  those  which  he  owed  as  partner  with  Beadle.  When 
we  speak  of  a  man  as  trustee,  who  is  not  strictly  a  trustee,  we  are  often 
led  into  deductions  from  the  word  which  may  be  erroneous.  T.  Pars, 
on  Partn.  345.     *     *     * 

The  judgment  must  be  reversed,  new  trial  granted,  referee  dis- 
charged, costs  to  abide  event.^* 

i«  Compare  with  Murray  v,  Murray,  ante,  p.  288. 


330  TERMINATION   Or  THE   PAETNEKSHIP 

TERMINATION  OF  THE  PARTNERSHIP 
I.  By  Act  of  the  Partners — Mutual  Assent  *■ 


SOLOMON  V.  KIRKWOOD  et  al. 
(Supreme  Court  of  Michigan,  1SS4.    55  Mich.  256,  21  N.  W.  336.) 

CooLEY,  C.  J.^  The  plaintiffs,  who  are  in  the  city  of  Chicago  dealers 
in  jewelry,  seek  to  charge  the  defendants  as  partners  upon  a  prom- 
issory note  for  $791.92,  bearing  date  of  November  9,  1882,  and  signed 
"Hollander  &  Kirkwood."  The  note  was  given  by  the  defendant  Hol- 
lander, but  Kirkwood  denies  that  any  partnership  existed  between  the 
defendants  at  the  date  of  the  note. 

The  evidence  given  on  the  trial  tends  to  show  that  on  July  6,  1882, 
Hollander  &  Kirkwood  entered  into  a  written  agreement  for  a  part- 
nership for  one  year  from  the  1st  day  of  the  next  ensuing  month  in 
the  business  of  buying  and  selling  jewelry,  clocks,  watches,  etc.,  and 
in  repairing  clocks,  watches,  and  jewelry,  at  Ishpeming,  Mich.  Busi- 
ness was  begun  under  this  agreement,  and  continued  until  the  latter 
part  of  October,  1882,  when  Kirkwood,  becoming  dissatisfied,  locked 
up  the  goods  and  excluded  Hollander  altogether  from  the  business. 
He  also  caused  notice  to  be  given  to  all  persons  with  whom  the  firm 
had  had  dealings  that  the  partnership  was  dissolved,  and  had  the  fol- 
lowing inserted  in  the  local  column  of  the  paper  published  at  Ish- 
peming: "The  copartnership  heretofore  existing  between  Mr.  C.  H. 
Kirkwood  and  one  Hollander,  as  jewelers,  has  ceased  to  exist;  Mr. 
Kirkwood  having  purchased  the  interest  of  the  latter."  This  was  not 
signed  by  any  one. 

A  few  days  later  Hollander  went  to  Chicago,  and  there,  on  Novem- 
ber 9,  1882,  he  bought,  in  the  name  of  Hollander  &  Kirkwood,  of  the 
plaintiffs  goods  in  their  line  amounting  to  $791.92,  and  gave  to  the 
plaintiffs  therefor  the  promissory  note  now  in  the  suit.  The  note  was 
made  payable  December  15,  1882,  at  a  bank  in  Ishpeming.  When 
the  purchase  was  completed,  Hollander  took  away  the  goods  in  his 
iatchel.  The  plaintiffs  had  before  had  no  dealings  with  Plollander  & 
Kirkwood,  but  they  had  heard  there  was  such  a  firm,  and  were  not 
aware  of  its  dissolution.  They  claim  to  have  made  the  sale  in  good 
faith  and  in  the  belief  that  the  firm  was  still  in  existence.  On  the  other 
hand,  Kirkwood  claimed  that  Hollander  and  the  plaintiffs  had  con- 
spired together  to  defraud  him  by  a  pretended  sale  to  the  firm  of  goods 
which  the  plaintiffs  knew  Hollander  intended  to  appropriate  exclu- 
sively to  himself;   and  he  was  allowed  to  prove  declarations  of  Hol- 

1  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §§  196-198. 

2  Part  of  the  opinion  is  omitted. 


BY    ACT   OF   THE    PARTNERS — MUTUAL   ASSENT  331 

lander  which,  if  admissible,  would  tend  strongly  to  prove  such  a  con- 
spiracy. 

The  questions  principally  contested  on  the  trial  were,  first,  whether 
the  acts  of  Kirkwood  amounted  to  a  dissolution  of  the  partnership; 
second,  whether  sufficient  notice  of  dissolution  was  given ;  and,  third, 
whether  there  was  any  evidence  to  go  to  the  jury  of  an  understanding 
between  Hollander  and  the  plaintiffs  to  defraud  Kirkwood.  The  trial 
judge,  in  submitting  the  case  to  the  jury,  instructed  them:  That  Kirk- 
wood, notwithstanding  the  written  agreement,  had  a  right  to  withdraw 
from  the  partnership  at  any  time,  leaving  matters  between  him  and 
Hollander  to  be  adjusted  between  them  amicably  or  in  the  courts; 
and  for  the  purposes  of  this  case  it  made  no  difference  whether  Kirk- 
wood was  right  or  wrong  in  bringing  the  partnership  to  an  end.  H 
wrong,  he  might  be  liable  to  Hollander  in  damages  for  the  breach  of 
his  contract.  Also,  that  when  partners  are  dissatisfied,  or  they  cannot 
get  along  together,  and  one  partner  withdraws,  the  partnership  is 
then  at  an  end  as  to  the  public  and  parties  with  whom  the  partnership 
deals,  and  neither  partner  can  make  contracts  in  the  future  to  bind 
the  partnership,  provided  the  retiring  partner  gives  the  proper  notice. 
Also,  that  if  they  should  find  from  the  evidence  that  there  was  trouble 
between  Hollander  and  Kirkwood  prior  to  the  sale  of  the  goods  and 
the  giving  of  the  note,  that  Kirkwood  informed  Hollander  in  sub- 
stance that  he  would  have  no  more  dealings  with  him  as  partner,  that 
he  took  possession  of  all  the  goods  and  locked  them  up,  and  from 
that  time  they  ceased  to  do  business,  then  the  partnership  was  dis- 
solved. Further,  that  whether  sufficient  notice  had  been  given  of  the 
dissolution  was  a  question  for  the  jury.  Kirkwood  was  not  bound  to 
publish  notice  in  any  of  the  Chicago  papers.  He  was  only  bound  to 
give  actual  notice  to  such  parties  there  as  had  dealt"  with  the  partner- 
ship. But  Kirkwood  was  bound  to  use  all  fair  means  to  publish  as 
widely  as  possible  the  fact  of  a  dissolution.  Publication  in  a  news- 
paper is  one  of  the  proper  means  of  giving  notice,  but  it  is  not  abso- 
lutely essential ;  and  on  this  branch  of  the  case  the  question  for  the 
jury  was  whether  Kirkwood  gave  such  notice  of  the  dissolution  as 
under  the  circumstances  was  fair  and  reasonable.  H  he  did,  then  he 
is  not  liable  on  the  note;   if  he  did  not,  he  would  still  continue  liable. 

The  judge  also  submitted  to  the  jury  the  question  of  fraud  in  the 
sale  of  the  goods.     The  jury  returned  a  verdict  for  the  defendants. 

We  think  the  judge  committed  no  error  in  his  instructions  respect- 
ing the  dissolution  of  the  partnership.  The  rule  on  this  subject  is  thus 
stated  in  an  early  New  York  case:  The  right  of  a  partner  to  dissolve, 
it  is  said,  "is  a  right  inseparably  incident  to  every  partnership.  There 
can  be  no  such  thing  as  an  indissoluble  partnership.  Every  partner 
has  an  indefeasible  right  to  dissolve  the  partnership  as  to  all  future 
contracts  by  publishing  his  own  volition  to  that  effect;  and  after  such 
publication  the  other  members  of  the  firm  have  no  capacity  to  bind 
him  by  any  contract.     Even  where  partners  covenant  with  each  other 


333  TERMINATION   OF   THE   PARTNERSHII 

that  the  partnership  shall  continue  seven  years,  either  partner  may  dis- 
solve it  the  next  day,  proclaiming  his  determination  for  that  purpose ; 
the  only  consequence  being  that  he  thereby  subjects  himself  to  a  claim 
for  damages  for  a  breach  of  his  covenant.  The  power  given  by  one 
partner  to  another  to  make  joint  contracts  for  them  both  is  not  only 
a  revocable  power,  but  a  man  can  do  no  act  to  divest  himself  of  the 
capacity  to  revoke  it."  Skinner  v.  Dayton,  19  Johns.  (N.  Y.)  513, 
o3S,  10  Am.  Dec.  286.  To  the  same  effect  are  Mason  v.  Council,  1 
Whart.  (Pa.)  381,  and  Slcmmer's  Appeal,  58  Pa.  155,  98  Am.  Dec. 
248.  There  may  be  cases  in  which  equity  would  enjoin  a  dissolution 
for  a  time,  when  the  circumstances  were  such  as  to  make  it  specially 
injurious;  but  no  question  of  equitable  restraint  arises  here.  When 
one  partner  becomes  dissatisfied,  there  is  commonly  no  legal  policy  to 
be  subserved  by  compelling  a  continuance  of  the  relation,  and  the  fact 
that  a  contract  will  be  broken  by  the  dissolution  is  no  argument  against 
the  right  to  dissolve.  Most  contracts  may  be  broken  at  pleasure,  sub- 
ject, however,  to  responsibility  in  damages;  and  that  responsibility 
would  exist  in  breaking  a  contract  of  partnershi_p  as  in  other  cases. 

The  instruction  respecting  notice  was  also  correct.  No  court  can 
determine  for  all  cases  what  shall  be  sufficient  notice  and  what  shall 
not  be.    The  question  must  necessarily  be  one  of  fact.    *    *    * 

But  we  think  the  judge  erred  in  receiving  evidence  of  Hollander's 
admissions  or  declarations  tending  to  show  fraudulent  collusion  be- 
tween him  and  the  plaintiffs.    *     *    * 

For  this  error  there  must  be  a  new  trial. 


II.  Dissolution  by  Operation  of  Law  * 


PEARCE  v.  CHAMBERLAIN. 

(In  Chancery,  at  the  Rolls,  1750.    2  Ves.  Sr.  33.) 

Articles  between  Robert  Plummer  and  Daniel  Pearce  recited  that 
Plummer  had  carried  on  the  trade  of  a  brewer  at  Hoddesdon,  and  had 
employed  Pearce  as  servant  and  brewer,  who  having  behaved  himself 
faithfully,  etc.,  and  advancing  a  moiety  of  the  value  of  the  effects, 
he  took  him  into  partnership  for  9  years,  if  Pearce  should  so  long 
live ;  but,  if  he  lived  to  the  end  of  9  years,  the  partnership  should 
continue  for  any  further  term,  not  exceeding  21  years,  as  Pearce  should 
desire,  on  giving  notice,  to  continue  it.  It  was  provided  that,  notwith- 
standing the  death  of  Plummer,  it  should  be  carried  on  by  his  repre- 
sentatives, and  that,  if  Pearce  should  give  that  notice,  he  should  not 
have  it  in  his  option  to  pay  off  the  representatives  of  Plummer  and 
carry  it  on  himself,  but  with  them. 

3  For  a  discussion  of  principles,  see  Gilmore  on  Partnership,  §  198. 


DISSOLUTION    BY   OPERATION    OF   LAW  333 

This  bill  was  by  the  widow  and  representatives  of  Pearce,  against 
the  representatives  of  Plummer,  for  an  account,  and  for  liberty  to 
carry  on  the  trade  with  the  defendants.*     *     ♦     ♦ 

Strange,  M.  R.  Considering  the  whole  frame  and  design  of  the 
articles,  Pearce  was  only  admitted  in  ease  of  Plummer,  and  for  his 
skill  in  the  trade,  and,  after  that  end  was  defeated  by  his  death,  it  could 
not  be  the  intent  that  any  representative  of  him  should  have  an  op- 
portunity to  carry  it  on,  as  it  might  fall  into  such  hands  as  could  not 
be  of  service,  and  though  it  might  come  to  the  representatives  of  one, 
and  not  of  the  other,  that  is  by  express  provision  of  tlie  parties.  There- 
fore on  the  articles  the  plaintiff  is  not  entitled  to  a  decree  to  carry  on 
the  partnership. 

But,  as  a  general  question,  the  consequence  with  regard  to  trade 
weighs  greatly  with  me.  It  would  be  of  ill  consequence  in  general 
to  say  that  in  articles  of  partnership  in  trade,  where  no  provisions  for 
the  death  of  eitlier  is  made,  they  might  subsist  for  benefit  of  an  execu- 
tor who  may  not  have  skill  therein.  The  plaintiff  could  be  of  no  use 
in  carrying  on  the  partnership.  Plummer  wanted  one  whose  knowl- 
edge he  could  confide  in.  The  plaintiff,  the  administratrix,  is  en- 
titled to  one-third;  the  infant  to  the  other  two  shares.  Her  intestate 
might  be  indebted,  and  the  assets  wanted  to  be  distributed.  It  is 
improper,  therefore,  to  suflfer  such  a  construction,  unless  the  parties 
provide  for  it.  I  remember  that  case  in  Baxter  v.  Burfield,  2  Stra. 
1266.  It  was  an  action  against  the  surety  in  a  bond  conditioned  for 
performance  of  the  articles.  The  master,  to  whom  the  youth  was 
bound,  died.  The  executors  thought  they  might  have  some  benefit  of 
his  time;  and  the  view,  therefore,  was  not  to  have  him  personally  their 
servant,  and  to  instruct  him  farther  in  the  trade,  but  to  put  that  bene- 
fit of  the  infant's  service  into  their  own  pocket.  The  court,  considering 
the  inconvenience  attending  apprentices  or  trade  in  general,  if  infants 
were  obliged  to  serve  executors  or  administrators  for  remainder  of 
the  term,  although  not  of  the  same  trade  with  the  infant,  determined 
it  for  the  defendant,  that  the  action  would  not  lie.  I  also  remember 
Huddleston's  Case,  and  am  pretty  certain  (though  not  very  positive) 
that  he  was  under  a  great  dejection  of  mind,  so  that  a  commission  was 
applied  for ;  but  before  that  question  came  before  the  court  he  had 
recovered  himself,  and  was  desirous  to  carry  on  the  partnership.  The 
court  said  these  were  accidents  which  could  not  be  provided  for ;  but 
that  was  no  reason,  when  he  had  brought  all  his  substance  into  trade, 
the  other  partner  should  say  that  a  temporary  disorder  intervening 
should  deprive  him  during  life  from  going  on  with  the  business,  and 
that  he  should  put  the  whole  benefit  of  the  partnership  into  his  pocket, 
without  accounting  for  it.  So  that  the  court  held  he  had  not  forfeited 
the  benefit  under  the  partnership,  but  should,  notwithstanding  that 
accident,  be  considered  as  partner.  That  case  depended  entirely  on 
that  circumstance ;    and  there  was  a  prospect  of  his  recovery. 

*  Statement  of  facts  abridged. 


334  TERMINATION    OF   THE   PAETNERSHIP 


III.  Dissolution  by  Judicial  Decree — Impossibility  of  Success  ■ 


CASH  V.  EARNSHAW  et  al. 

(Supreme  Court  of  Illinois,  1S72.     66  111.  402.) 

Scott,  J.  This  bill  was  to  dissolve  a  copartnership  entered  into 
by  the  parties  to  this  suit  on  the  26th  day  of  November,  1869,  for 
the  purpose  of  carrying  on  the  business  of  quarrying  stone,  and  was 
to  continue  through  the  full  period  of  five  years. 

The  ground  set  out  in  the  bill,  upon  which  the  plaintiff  seeks  re- 
lief, is  the  misconduct  of  the  partner  Emanuel  Earnshaw.  No  cause 
of  complaint  is  alleged  against  any  other  member  of  the  firm.  He 
is  charged  with  specific  acts  of  wrongful  conduct  and  general  mis- 
management of  the  business  of  the  firm.  On  account  of  the  char- 
ges in  the  bill,  plaintiff  in  error  sought  to  have  the  court  dissolve 
the  copartnership,  appoint  a  receiver,  and  close  up  the  afifairs  of  the 
firm.  The  court  b.elow  denied  the  relief,  and  plaintiff  brings  the 
cause  to  this  court  on  error. 

It  is  not  for  every  act  of  misconduct  on  the  part  of  one  partner 
that  a  court  of  equity,  at  the  instance  of  another,  will  dissolve  the 
partnership  and  close  up  the  affairs  of  the  company.  The  court  will 
require  a  strong  case  to  be  made,  and  it  is  laid  down  as  a  general 
principle  that  a  court  has  no  jurisdiction  to  make  a  separation  be- 
tween partners  for  trifling  causes  or  temporary  grievances  involving 
no  permanent  mischiefs.     3  Kent,  60. 

Story,  in  his  work  on  Partnership,  states  the  rule  to  be  that,  to 
justify  such  an  extraordinary  interposition,  the  court  always  expects 
a  strong  and  clear  case  to  be  made  out  of  positive  and  meditated 
abuse.  For  minor  misconduct  or  grievances,  he  says,  if  they  require 
any  redress,  the  court,  ordinarily,  will  go  no  further  than  to  act  upon 
the  faulty  party  by  way  of  an  injunction.  Story  on  Partnership, 
§  288,  and  authorities  cited. 

We  have  carefully  examined  the  evidence  in  the  record,  and  we 
fail  to  discover  that  clear  and  satisfactory  proof  of  the  allegations 
in  the  bill  that  the  law  undoubtedly  requires.  Indeed,  so  far  as  we 
can  see,  there  is  no  act  on  the  part  of  Emanuel  Earnshaw  that  the 
plaintiff  in  error  can  have  any  just  cause  of  complaint,  unless  it  was 
the  failure  to  give  him  a  check  for  $.500  on  the  12th  day  of  Novem- 
ber, 1870,  when  requested.  And,  if  there  was  no  explanation  to  this 
fact,  we  do  not  think  that  it  is  of  sufficient  gravity  to  justify  the  use 
of  the  extraordinary  power  by  the  court  of  equity  to  put  an  end  to 
the  entire  contract  between  the  parties.  The  contract  of  copartner- 
ship  was   deliberately   entered   into   after   mature   consideration,   and 

6  For  a  discussion  of  principles,  see  Gilmore  on  Partnersliip,  §§  200-203. 


DISSOLUTION   BY   JUDICIAL   DECREE  335 

not  without  considerable  knowledge  of  each  other's  characters  and 
fitness,  and  it  ought  not  to  be  dissolved  on  account  of  any  mere  tri- 
fling cause. 

It  is  apparent,  from  what  took  place  at  the  time,  that  Earnshaw 
did  not  intend  any  wrong  to  plaintiff  in  error  by  the  refusal  to  give 
the  check.  The  evidence  warrants  us  in  saying  that  there  was  an 
honest  dispute  as  to  the  amount  then  due  to  him.  Plaintiff  in  error, 
for  some  reason  satisfactory  to  himself,  did  not  choose  to  have  the 
accounts  passed  upon  at  that  time,  and  hence  the  check  was  not  giv- 
en. It  turned  out,  however,  upon  subsequent  investigation,  that 
there  was  more  than  the  amount  demanded  due  him,  and  he  ought, 
in  fact,  to  have  the  check;  but  Earnshaw  may  have  been  honestly 
in  doubt  as  to  the  amount.  If  so,  he  ought  not  to  be  charged  with 
willful  misconduct,  and  his  contract  for  that  reason  alone  dissolved, 
and  his  business  broken  up.  The  consequences  of  the  dissolution  of 
copartnership  are  of  too  serious  a  character  to  be  justified  by  so  slight 
a  cause.  Under  the  most  unfavorable  view,  it  would  only  work  a 
temporary  inconvenience,  and  it  is  not  pretended  that  any  permanent 
injury  resulted  from  the  refusal  to  give  him  a  check  for  the  desired 
amount  on  that  day.  His  own  conduct  in  the  premises  is  not  alto- 
gether blameless,  and  he  ought  not  to  be  allowed  to  make  the  mis- 
taken judgment  of  his  partner  the  ground  for  the  dissolution  of  their 
contract. 

By  the  agreement  of  the  parties,  Emanuel  Earnshaw  was  made 
general  superintendent  of  the  affairs  of  the  company,  and  it  is  in- 
sisted that  he  made  large  sales  on  credit  to  the  injury  of  plaintiff 
in  error  as  a  member  of  the  firm.  It  was  not  provided  by  the  arti- 
cles of  copartnership  that  no  sales  should  be  made  on  a  credit.  It 
was,  however,  stipulated  that  no  sales  should  be  made  on  a  credit 
by  one  member  "against  the  express  wish  or  consent  of  two  others." 
The  evidence  tends  to  show  that  the  sales  that  were  made  on  credit, 
of  which  complaint  is  made,  were  not  recklessly  done,  but  were  deem- 
ed reasonable  sales  at  the  time.  Certainly  they  were  not  so  improv- 
idently  made  as  to  be  regarded  as  willful  misconduct  on  the  part  of 
the  superintendent.  Losses  did  occur,  but  they  were  through  mere 
error  of  judgment.  The  credits  given  were  for  short  periods,  and 
other  parties,  considered  prudent  men,  engaged  in  the  same  line  of 
business,  made  similar  sales  with  like  disastrous  results.  In  making 
the  sales  on  credit,  he  violated  no  express  agreement  of  the  parties, 
and,  inasmuch  as  it  appears  that  it  was  in  accordance  with  the  cus- 
tom of  the  trade,  we  see  no  grounds  for  just  complaint  against  the 
action  of  the  superintendent  in  this  regard.  He  seems  to  have  act- 
ed with  reasonable  prudence,  and  certainly  no  willful  conduct  can 
be  imputed  to  him  that  ought  to  be  visited  with  any  serious  conse- 
quences. 

The  most  serious  cause  of  complaint  seems  to  be  in  regard  to 
makinr:  the  Shannon  contract  in  the  first  place,  and  the  subsequent 


336  TERMINATION    OF   THE   PARTNERSHIP 

agreement  with  Steele  and  McMahan  to  perform  and  complete  bis 
contract  with  them.  It  is  alleged  that  by  reason  of  the  improvident 
contract  with  Shannon,  and  the  subsequent  agreement  to  complete 
the  work  on  Lake  street,  large  losses  were  incurred  through  misman- 
agement of  Emanuel  Earnshaw.  No  doubt  the  contract  with  Shan- 
non was  an  unfortunate  one,  but  it  was  certainly  deemed  a  good  one 
by  all  the  parties  when  made,  and,  if  he  had  been  able  to  perform  it, 
it  would  have  been  in  the  end  greatly  to  their  interest.  When  Shan- 
non failed,  Earnshaw  deemed  it  most  advantageous  for  the  interest 
of  all  concerned  that  the  company  should  assume  the  contract  and 
complete  the  work.  It  was  thought  it  would  be  a  great  saving  to  the 
company.  It  is  true  that  the  superintendent  made  the  contract  with 
Steele  and  McMahan  without  having  first  consulted  with  any  of  the 
partners;  but  they  certainly  all  consented  to  the  arrangement  after 
it  was  made.  Plaintiff  in  error  says  that  he  protested  against  the 
company  assuming  the  contract;  but  he  himself  superintended  the  work 
for  part  of  the  time,  and  did  other  acts  that  cannot  but  be  regarded 
as  a  ratification  of  the  act  of  the  superintendent  in  undertaking  to 
complete  the  work.  It  does  not  appear  but  that,  under  all  the  cir- 
cumstances, it  was  the  very  best  thing  the  company  could  do,  and  per- 
haps prevented  heavier  losses  than  would  otherwise  have  been  sustained. 

It  is  hardly  necessary  to  comment  separately  on  the  other  charges 
of  misconduct.  We  do  not  find  in  all  the  record  any  cause  of  suffi- 
cient gravity,  proven  by  clear  and  satisfactory  evidence,  that  would 
justify  a  court  of  equity  to  interpose  to  put  an  end  to  the  partner- 
ship relations  between  the  parties.  It  may  be  that  there  were  slight 
errors  in  judgment  on  the  part  of  the  superintendent;  but  no  evi- 
dence of  willful  misconduct  appears  that  would  result  in  serious  in- 
jury to  plaintiff  in  error  or  any  member  of  the  firm.  No  reason  ap- 
pears that  would  prevent  a  profitable  and  harmonious  co-operation 
between  the  several  partners  in  the  prosecution  of  the  common  busi- 
ness of  the  firm,  and  hence  no  cause  for  dissolution;  and  the  decree 
of  the  superior  court  is  affirmed. 

Decree  affirmed. 


WZBT  rUBhlBBISQ  CO.,  PBUiTEBS,  ST.  FAUL,  UINB. 


THE  UNIFORM  PARTNERSHIP  ACT 


I'AIlT  I.    PRELIMINARY    PROVISIONS 

Section   I.— Name  of  Act.    This  act  may  be  citfd  as  Unifonu  Partnerfihip  Act. 

Sec.  2.— Definition  of  Terms.  lu  this  act,  "Court"  includes  every  court  and 
judge  liaviiig  jurisiliclioii  in  the  case. 

"Busiuoss"  iiuhKicH  every  trade,   occupation,  or  profeRsion. 

"Person"  includes  individuals,  partnerships,  corporations,  and  other  assod- 
ations. 

"Hankrupt"  includes  bankrupt  under  the  Federal  Bankruptcy  Act  or  insolvent 
under  any  state  insolvent  act. 

"Conveyance"    includes   every   assiRnnient,   lease,   mortgage,   or   encumbrance. 
•  "Real   property"   includes  land  and   any   interest  or  estate   in  land. 

Sec.  3. — Interpretation  of  Knowledge  and  Notice.  (1)  A  person  has  "knowl- 
edge" of  a  fact  within  the  meaning  of  this  act  not  only  when  he  has  actual 
knowledge  thereof,  but  also  when  he  has  knowledge  of  such  other  facts  as  in 
the  circumstances  shows  bad  faith. 

(2)  A  person  has  "notice"  of  a  fact  within  the  meaning  of  this  act  when  the 
person  who  claims  the  benefit  of  the  notice 

(a)  States  the  fact  to  such  person,  or 

(b)  Delivers  through  the  mail,  or  by  other  means  of  communication,  a  writ- 
ten statement  of  the  fact  to  such  person  or  to  a  proper  person  at  his  place  of 
businet^s  or  residence. 

Sec.  4.— Rules  of  Construction,  (1)  The  rule  that  statutes  in  derogation  ot 
the  common  law  are  to  be  strictly  construed  shall  have  no  application  to  this  act. 

(2)  The  law  of  estoppel  shall  apply  under  this  act. 

(3)  The  law  of  agency  shall  apply  under  this  act. 

(4)  This  act  shall  be  so  interpreted  and  construed  as  to  effect  its  general  pur- 
pose to  make  uniform  the  law  of  those  states  which  enact  it. 

(5)  This  act  shall  not  be  construed  so  as  to  impair  the  obligations  of  any  con- 
tract existing  when  the  act  goes  into  effect,  nor  to  affect  any  action  or  proceed- 
ings begun  or  right  accrued  before  this  act  takes  effect. 

Sec.  5.— Rules  for  Cases  not  Provided  for  in  this  Act.  In  any  case  not  pro- 
vided for  in  this  act  the  rules  of  law  and  equity,  including  the  law  merchant, 
shall  govern. 

PART  II.    NATURE   OF  A   PARTNERSHIP 

Sec.  6. — Partnership  Defined.  (1)  A  partnership  is  an  association  of  two  or 
more  persons  to  carry  on  as  co-owners  a  business  for  profit. 

(2)  But  any  association  formed  under  any  other  statute  of  this  state,  or  any 
statute  adopted  by  authority,  other  than  the  authority  of  this  state,  is  not  a 
partnership  under  this  act,  unless  such  association  would  have  been  a  partner- 
ship in  this  state  prior  to  the  adoption  of  this  act;  but  this  act  shall  apply  to 
limited  partnerships  except  in  so  far  as  the  statutes  relating  to  such  partner- 
ships are  inconsistent  herewith. 

Sec.  7.— Rules  for  Determining  the  Existence  of  a  Partnership.  In  deter- 
mining whether  a  partnership  exists,  these  rules  shall  apply: 

(1)  Except  as  provided  by  section  Hi  persons  who  are  not  partners  as  to  each 
other  are  not  partners  as  to  third  persons. 

(2)  Joint  tenancy,  tenancy  in  common,  tenancy  by  the  entireties,  joint  prop- 
erty, common  property,  or  part  ownership  does  not  of  itself  establish  a  partner- 
ship, whether  such  co-owners  do  or  do  not  share  any  profits  made  by  the  use 
of  the  property. 

(3)  The  sharing  of  gross  returns  does  not  of  itself  establish  a  partnership, 
whether  or  not  the  persons  sharing  them  have  n  joint  or  common  right  or  in- 
terest in  any  property  from  which  the  returns  are  derived. 

(4)  The  receipt  by  a  person  of  a  share  of  the  profits  of  a  business  is  prima 
facie  evidence  that  he  is  a  partner  in  the  business,  but  no  such  inference  shall 
be  drawn  if  such  profits  were  received  in  payment: 

(a)  As  a  debt  by  installments  or  otherwise, 

(b)  As  wages  of  an  employee  or  rent  to  a  landlord, 

(c)  As  an   annuity  to  a  widow  or  representative  of  a  deceased  partner, 

(d)  As  interest  on  a  loan,  though  the  amount  of  payment  vary  with  the 
profits  of  the  business, 

(e)  As  the  consiileration  for  the  sale  of  the  good-will  of  a  business  or  other 
property  bv  installments  or  otherwise. 

Sec.  8.— Partnership  Property.  (1)  All  property  originally  brought  into  the 
partnership  stock  or  subseciuently  aciiuired,  by  purchase  or  otherwise,  on  ac- 
count of  the  partnersliip  is  partnership  property. 

(2)  Unless  the  contrary  intention  appears,  property  acquired  with  partner- 
ship funds  is  partnership  property. 

(1) 


2  THE    UNIFORM    PARTNERSHIP   ACT 

(3)  Any  estate  in  real  property  may  be  acquired  in  the  partnership  name. 
Title  so  acquired  can  be  conveyed  only  in  the  partnership  name. 

(4)  A  conveyance  to  a  partnership  in  the  partnership  name,  though  without 
words  of  inheritance,  passes  the  entire  estate  of  the  grantor  unless  a  contrary 
intent  appears. 

PART  III.    RELATIONS  OF  PARTNERS  TO  PERSONS  DEALING  WITH 

THE  PARTNERSHIP 

Sec.  9.— Partner  Agent  of  Partnership  as  to  Partnership  Business.  (1)  Every 
partner  is  an  agent  of  the  partnership  for  the  purpose  of  its  business,  and  the 
act  of  every  partner,  including  the  execution  in  the  partnership  name  of  any  in- 
strument, for  apparently  carrying  on  in  the  usual  way  the  business  of  the  part- 
nership of  which  he  is  a  member  binds  the  partnership,  unless  the  partner  so 
acting  has  in  fact  no  authority  to  act  for  the  partnership  in  the  particular  maV 
ter,  and  the  person  with  whom  he  is  dealing  has  knowledge  of  the  fact  that  he 
has  no  such  authority. 

(2)  An  act  of  a  partner  which  is  not  apparently  for  the  carrying  on  of  the 
business  of  the  partnership  in  the  usual  way  does  not  bind  the  partnership  un- 
less authorized  by  the  other  partners. 

(3)  Unless  authorized  by  the  other  partners  or  unless  they  have  abandoned 
the  business,  one  or  more  but  less  than  all  the  partners  have  no  authority  to: 

(a)   Assign   the   partnership   property   in    trust   for   creditors   or   on  the   as- 
signee's promise  to  pay  the  debts  of  the  partnership, 
tb)   Dispose  of  the  good-will  of  the  business, 

(c)  Do  any  other  act  which   would  make  it  impossible   to  carry  on  the  or- 
dinary business  of  the  partnership, 

(d)  Confess  a  judgment, 

(e)  Submit  a  partnership  claim  or  liability  to  arbitration  or  reference. 

(4)  No  act  of  a  partner  in  contravention  of  a  restriction  on  his  authority 
.«hall  bind  the  partnership  to  persons  having  knowledge  of  the  restriction. 

Sec.  10.— Conveyance  of  Real  Property  of  the  Partnership.  (1)  Where  title 
to  real  property  is  in  the  partnership  name,  any  partner  may  convey  title  to 
such  property,  by  a  conveyance  executed  in  the  partnership  name;  but  the 
partnership  may  recover  such  property  unless  the  partner's  act  binds  the  part- 
nership under  the  provisions  of  paragraph  (1)  of  section  9,  or  unless  such 
property  has  been  conveyed  by  the  grantee  or  a  person  claiming  through  such 
grantee  to  a  holder  for  value  without  knowledge  that  the  partner,  in  making 
the  conveyance,  has  exceeded  his  authority. 

(2)  Where  title  to  real  property  is  in  the  name  of  the  partnership,  a  convey- 
ance executed  by  a  partner,  in  his  own  name,  passes  the  equitable  interest  of 
the  partnership,  provided  the  act  is  one  within  the  authority  of  the  partner 
under  the  provisions  of  paragraph   (1)  of  section  9. 

(3)  Where  title  to  real  property  is  in  the  name  of  one  or  more  but  not  all 
the  partners,  and  the  record  does  not  disclose  the  right  of  the  partnership,  the 
partners  in  whose  name  the  title  stands  may  convey  title  to  such  property,  but 
the  partnership  may  recover  such  property  if  the  partners'  act  does  not  bind  the 
partnership  under  the  provisions  of  paragraph  (1)  of  section  9,  unless  thie  pur- 
chaser or  his  assignee,  is  a  holder  for  value,  without  knowledge. 

(4)  Where  the  title  to  real  property  is  in  the  name  of  one  or  more  or  all  the 
partners,  or  in  a  third  person  in  trust  for  the  partnership,  a  conveyance  executed 
by  a  partner  in  the  partnership  name,  or  in  his  own  name,  passes  the_  equitable 
interest  of  the  partnership,  provided  the  act  is  one  within  the  authority  of  the 
partner  under  the  provisions  of  paragraph   (1)   of  section  9. 

(5)  Where  the  title  to  real  property  is  in  the  names  of  all  the  partners  a 
conveyance  executed  by  all  the  partners  passes  all  their  rights  in  such  property. 

Seo.  1 1.— Partnership  Bound  by  Admission  of  Partner.  An  admission  or  rep- 
resentation made  by  any  partner  concerning  partnership  affairs  within  the  scope 
of  his  authority  as   conferred  by  this  act  is  evidence  against  the  partnership. 

Sec.  12.— Partnership  Charged  with  Knowledge  of  or  Notice  to  Partner.  No- 
tice to  any  partner  of  any  matter  relating  to  partnership  affairs,  anu  the  knowl- 
edge of  the  partner  acting  in  the  particular  matter,  acquired  while  a  partner 
or  then  present  to  his  mind,  and  the  knowledge  of  any  other  partner  who  rea- 
sonably could  and  should  have  communicated  it  to  the  acting  partner,  operate 
as  notice  to  or  knowledge  of  the  partnership,  except  in  the  case  of  a  fraud  on 
the  partnership  committed  by   or  with   the  consent  of  that  partner. 

Sec.  13.— Partnership  Bound  by  Partner's  Wrongful  Act.  Where,  by  any 
wrongful  act  or  omission  of  any  partner  acting  in  the  ordinary  course  of  the 
business  of  the  partnership,  or  with  the  authority  of  his  co-partners,  loss  or 
injury  is  caused  to  any  person,  not  being  a  partner  in  the  partnership,  or  any 
penalty  is  incurred,  the  partnership  is  liable  therefor  to  the  same  extent  as  the 
partner  oo  acting  or  omitting  to  act. 

Sec.  14.— Partniership  Bound  by  Partner's  Breach  of  Trust.  The  partnership 
is  bound  to  make  good  the  lossi- 


THE   UNIFORM    PARTNERSHIP   ACT  8 

(a)  Where   one   partner   acting   within   the   Bcopc   of   his   apparent   aothoritj 
receives  money  or  property  of  a  third  person  and  misapplies  it;    and 

(b)  Where  the  partJiership  in  the  course  of  its  business  receives  money  or 
property  of  a  third  person  and  the  money  or  property  ho  received  is  misapplied 
by  any  pnrtni>r  wiiilo  it  is  in  the  ciistoily  of  the  partnership. 

Sec.   15.— Nature  of  Partner's   Liability.    All  partners  are  liable. 

(a)  Jointly  and  severally  for  everything  chargeable  to  the  partnershio  un- 
der sections  l.S  and  1-1. 

(b)  Jointly  for  all   other  debts  and  obligations  of  the  partnership;    but  any 
partner  may  enter  into   a  separate  obligation  to   perform   a   partnershio  con- 
tract. ^ 
Sec.   16.— Partner  by  Estoppel.     (1)   When  a  person,  by  words  spoken  or  writ- 
ten or   by   conduct,   represents   himself,  or  consents  to  another  re|)resenting  him 
to  any  one,  as  a  partner  in  an  existing  partnership  or  with  one  or  more  persons 
not  actual  partners,   he  is  liable  to   any   such  person  to  whom   such   representa- 
tion has  been   made,   who  has,  on  the   faith  of  such  representation,  given  credit 
to  the  actual   or  apparent  partnership,   and   if  he   has  made  such   representation 
or  consented  to  its  being  made  in  a  public  manner  he  is  liable  to  such  person, 
whether  the  representation  has  or  has  not  been  made  or  communicated  to  such 
person  so  giving  credit  by  or  with  the  knowledge  of  the  apparent  partner  mak- 
ing the  representation  or  consenting  to  its  being  made. 

(a)  When  a  partnership  liability  results,  he  is  liable  aa  though  he  were  an 
actual  member  of  the  partnership. 

(b)  When  no  partner.ship  liability  results,  he  is  liable  jointly  with  the  oth- 
er persons,  if  any,  so  consenting  to  the  contract  or  representation  as  to  incur 
liability,  otherwise  separately. 

(2)  When  a  person  has  been  thus  represented  to  be  a  partner  in  an  existing 
partnership,  or  with  one  or  more  persons  not  actual  partners,  he  is  an  agent  of 
the  persons  consenting  to  such  representation  to  bind  them  to  the  same  extent 
and  in  the  same  manner  as  though  he  were  a  partner  in  fact,  with  respect  to 
persons  who  rely  upon  the  representation.  Where  all  the  members  of  the  ex- 
isting partnership  consent  to  the  representation,  a  partnership  act  or  obligation 
results;  but  in  all  other  cases  it  is  the  joint  act  or  obligation  of  the  person 
acting  and  the  persons  consenting  to  the  representation. 

Sec.  17. — Liability  of  Incoming  Partner.  A  person  admitted  as  a  partner  into 
an  existing  partnership  is  liable  for  all  the  obligations  of  the  partnership  arising 
before  his  admission  as  though  he  had  been  a  partner  when  such  obligationis 
were  incurred,  except  that  this  liability  shall  be  satisfied  only  out  of  partnership 
property. 

PART  IV.  RELATIONS  OF  PARTNERS  TO  ONE  ANOTHE31 

Sec  18.— Rules  Determining  Rights  and  Duties  of  Partners.  The  rights  and 
duties  of  the  partners  in  relation  to  the  partnership  shall  be  determined,  sub- 
ject to  any  agreement  between  them,  by  the  following  rules: 

(a)  Each  partner  shall  be  repaid  his  contributions,  whether  by  way  of  cap- 
ital or  advances  to  the  partnership  property  and  share  equally  in  the  profits 
and  surplus  remaining  after  all  liabilities,  including  those  to  partners,  are 
satisfied;  and  must  contribute  towards  the  losses,  whether  of  capital  or  oth- 
erwise, sustained  by  the  partnership  according  to  his  share  in  the  profits. 

(b)  The  partnership  must  indemnify  every  partner  in  respect  of  payments 
made  and  personal  liabilities  reasonably  incurred  by  him  in  the  ordinary  and 
proper  conduct  of  its  business,  or  for  the  preservation  of  its  business  or 
property. 

tc)  A  partner,  who  in  aid  of  the  partnership  makes  any  payment  or  advance 
beyond  the  amount  of  capital  which  he  agreed  to  contribute,  shall  be  paid  in- 
terest from  the  date  of  the  payment  or  advance. 

(d)  A  partner  shall  receive  interest  on  the  capital  coqtributed  by  him  only 
from  the  date  when  repayment  should  be  made. 

(e)  All  partners  have  equal  rights  in  the  management  and  conduct  of  the 
partnership  business. 

(f)  No  partner  is  entitled  to  remuneration  for  acting  in  the  partnership 
business,  except  that  a  surviving  p:irtner  is  entitled  to  reasonable  compensa- 
tion for  his  services  in  winding  up  the  partnership  affairs. 

(g)  No  person  can  become  a  member  of  a  partnership  without  the  consent 
of  all  the  partners. 

(h)  Any  difference  arising  as  to  ordinary  matters  connected  with  the  part- 
nership business  may  be  decided  by  a  majority  of  the  partners;  but  no  net  in 
contravention  of  any  iigreemont  between  the  partners  may  be  done  rightfully 
without  the  consent  of  ;ill  the  partners. 

Sec.  19. — Partnership  Books.  The  partnership  books  shall  be  kept,  subject  to 
any  agreement  between  the  partners,  at  the  prineijial  place  of  business  of  the 
partnership,  and  every  partner  shall  at  all  times  have  access  to  and  may  inspect 
and  copy  any  of  them. 


4  THE    UNIFORM    PARTNERSHIP   ACT 

Sec.  20.— Duty  of  Partners  to  Render  Information.  Partners  shall  render  on 
demand  true  and  full  information  of  all  things  affecting  the  partnership  to  any 
partner  or  the  legal  representative  of  any  deceased  partner  or  partner  under 
legal  disability. 

Sec.  21.— Partner  Accountable  as  a  Fiduciary.  (1)  Every  partner  must  ac- 
count to  the  partnership  for  any  benefit,  and  hold  a^  trustee  for  it  any  profits 
derived  by  him  without  the  consent  of  the  other  partners  from  any  transaction 
connected  with  the  formation,  conduct,  or  liquidation  of  the  partnership  or  from 
any  use  by  him  of  its  property. 

(2)  This  section  applies  also  to  the  representatives  of  a  deceased  partner 
engaged  in  the  liquidation  of  the  affairs  of  the  partnership  as  the  personal  rep- 
resentatives of  the  last  surviving  partner. 

Sec.  22.— Right  to  an  Account.  Any  partner  shall  have  the  right  to  a  formal 
account  as  to  partnership  affairs:  ,  .     , 

(a)  If  he  is  wrongfully  excluded  from  the  partnership  business  or  posses- 
sion of  its  property  by  his  co-partners, 

(b)  If  the  right  exists  under  the  terms  of  any  agreement, 

(c)  As  provided  by  section  21, 

(d)  "Whenever  other  circumstances  render  it  just  and  reasonable. 

Sec.  23.— Continuation  of  Partnership  Beyond  Fixed  Term.  (1)  When  a  part- 
nership for  a  fixed  term  or  particular  undertaking  is  continued  after  the  ter- 
mination of  such  term  or  particular  undertaking  without  any  express  agreement, 
the  rights  and  duties  of  the  partners  remain  the  same  as  they  were  at  such  ter- 
mination, so  far  as  is  consistent  with  a  partnership  at  will.  ,       ,    ,  .. 

(2)  A  continuation  of  the  business  by  the  partners  or  such  of  them  as  habit- 
ually acted  therein  during  the  term,  without  any  settlement  or  liquidation  of  the 
partnership  affairs,  is  prima  facie  evidence  of  a  continuation  of  the  partnership. 

PAET  V.    PROPERTY    RIGHTS    OF   A    PARTNER 
Sec.  24.— Extent  of  Property  Rights  of  a  Partner.    The  property  rights  of  a 

partner   are    (1)    his   rights  in   specific  partnership  property,    (2)   his  interest  in 

the  partnership,  and  (3)  his  right  to  participate  in  the  management. 
Seo.  25.— Nature  of  a  Partner's   Right  in  Specific  Partnership  Property.    (1) 

A  partner  is  co-owner  with  his  partners  of  specific  partnership  property  holding 

as  a  tenant  in  partnership. 

(2)   The  incidents  of  this  tenancy  are  such  that: 

(a)  A  partner,  subject  to  the  provisions  of  this  act  and  to  any  agreement 
between  the  partners,  has  an  equal  right  with  his  partners  to  possess  specific 
partnership  property  for  partnership  purposes;  but  he  has  no  right  to  possess 
such  property  for  any  other  purpose  without  the  consent  of  his  partners. 

(b)  A  partner's  right  in  specific  partnership  property  is  not  assignable  ex- 
cept in  connection-  with  the  assignment  of  the  rights  of  all  the  partners  in  the 
same  property. 

(c)  A  partner's  right  in  specific  partnership  property  is  not  subject  to  at- 
tachment or  execution,  except  on  a  claim  against  the  partnership.  When 
partnership  property  is  attached  for  a  partnership  debt  the  partners,  or  any  of 
them,  or  the  representatives  of  a  deceased  partner,  cannot  claim  any  right 
under  the  homestead  or  exemption  laws. 

(d)  On  the  death  of  a  partner  his  right  in  specific  partnership  property 
vests  in  the  surviving  partner  or  partners,  except  where  the  deceased  was 
the  last  surviving  partner,  when  his  right  in  such  property  vests  in  his  legal 
representative.  Such  surviving  partner  or  partners,  or  the  legal  representa- 
tive of  the  last  surviving  partner,  has  no  right  to  possess  the  partnership  prop- 
erty for  any  but  a  partnership  purpose. 

(e)  A  partner's  right  in  specific  partnership  property  is  not  subject  to 
dower,  curtesy,  or  allowances  to  widows,  heirs,  or  next  of  kin. 

Sec  26.— Nature  of  Partner's  Interest  in  the  Partnership.  A  partners  inter- 
est in  the  partnership  is  his  share  of  the  profits  and  surplus,  and  the  same 
is  personal  property.  .      .^s    .  ,_ 

Sec.  27.— Assignment  of  Partner's  Interest.  (1)  A  conveyance  by  a  part- 
ner of  his  interest  in  the  partnership  does  not  of  itself  dissolve  the  partnership, 
nor,  as  against  the  other  partners  in  the  absence  of  agreement,  entitle  the  as- 
signee, during  the  continuance  of  the  partnership,  to  interfere  in  the  management 
or  administration  of  the  partnership  business  or  affairs,  or  to  require  any  infor- 
mation or  account  of  partnership  transactions,  or  to  inspect  the  partnership 
books;  but  it  merely  entitles  the  assignee  to  receive  in  accordance  with  his  con- 
tract the  profits  to  which  the  assigning  partner  would  otherv/ise  be  entitled. 

(2)  In  case  of  a  dissolution  of  the  partnership,  the  assignee  is  entitled  to  re- 
ceive his  assignor's  interest  and  may  require  an  account  from  the  date  only  of 
the  last  account  agreed  to  by  all  the  partners. 

Sec.  28.— Partner's  Interest  Subject  to  Charging  Order.  (1)  On  due  applica- 
tion to  a  competent  court  by  any  judgment  creditor  of  a  partner,  the  court 
which  entered  the  judgment,  order,  or  decree,  or  any  other  court,  may  charge  the 
interest  of  the  debtor  partner  with  payment  of  the  unsatisfied  amount  of  such 


THE    UNIFORM    PARTNERSHIP   ACT  o 

judgment  debt  with  interest  thereon;  and  may  then  or  later  appoint  a  receiver 
of  his  share  of  the  profits,  and  of  any  other  money  due  or  to  fall  due  to  him  in 
respect  of  the  partnersiiip,  and  make  all  other  orders,  directions,  accounts  and 
inquiries  which  the  debtor  partner  might  have  made,  or  which  the  circumstances 
of  the  case  may  refjuire. 

(2)  The  interest  charged  may  be  redeemed  at  any  tjme  before  foreclosure,  or 
in  case  of  a  sale  being  directed  by  the  court  may  be  purchased  without  thereby 
causing  a  dissolution: 

(a)   With  separate  property,  by  any  one  or  more  of  the  partners,  or 
Ih)   With  partnership  property,  by  any  one  or  more  of  the  partners  with  the 
consent  of  all   the  partners  whose  interests  are  not  so  (harped  or  sold. 

(3)  Nothing  in  this  not  shall  be  hold  to  deiJrivp  a  partner  of  his  right,  if 
any,  under  the  exemption  laws,  as  regards  his  interest  in  the  partnership. 

PART  VI.    DISSOLUTION  AND  WINDING  UP 

Sec.  29. — Dissolution  Defined.  The  dissolution  of  a  partnership  is  the  change  in 
the  relation  of  the  partners  caused  by  any  partner  ceasing  to  be  associated  in 
the  carrying   on  as  (lisi  intiuislied   from   the   winding  tip  of  tlie  business. 

Sec.  30.— Partnership  Not  Terminated  by  Dissolution.  On  dissolution  the  part- 
nership is  not  terminated,  but  continues  until  the  winding  up  of  partnership  af- 
fairs is  completed. 

Seo.  31. — Causes   of   Dissolution.    Dissolution  is  caused: 

(1)  Without  violation  of  the  agreement  between  the  partners, 

(a)  By  the  termination  of  the  definite  term  or  particular  undertaking  speci- 
fied in  the  agreement, 

(b)  By  the  express  will  of  any  partner  when  no  definite  term  or  particular 
undertaking  is  specified, 

(q)  By  the  express  will  of  all  the  partners  who  have  not  assigned  their  in- 
terests or  suffered  them  to  be  charged  for  their  separate  debt.«i.  either  before 
or  after  the  termination  of  any  specified  term  or  particular  undertaking. 

(d)  By  the  expulsion  of  any  partner  from  the  business  bona  fide  in  ac- 
cordance with  such  a  power  conferred  by  the  agreement  between  the  partners; 

(2)  In  contravention  of  the  agreement  between  the  partner.s,  where  the  cir- 
cumstances do  not  permit  a  dissolution  under  any  other  provision  of  this  sec- 
tion, by  the  express  will  of  any  partner  at  any  time; 

(3)  By  any  event  which  makes  it  unlawful  for  the  business  of  the  partnership 
to  be  carried  on  or  for  the  members  to  carry  it  on  in  partnership; 

(4)  By  the  death  of  any  partner; 

(5)  By  the  bankruptcy  of  any  partner  or  the  partnership; 
(G)  By  decree  of  court  under  section  32. 

Sec.  32.— Dissolution  by  Decree  of  Court.  (1)  On  application  by  or  for  a 
partner  the  court   shall  decree  a  dissolution  whenever: 

(a)  A  partner  has  been  declared  a  lunatic  in  any  judicial  proceeding  or  is 
shown  to  be  of  unsound  mind, 

(b)  A  partner  becomes  in  any  other  way  incapable  of  performing  his  part 
of  the  partnership  contract, 

(c)  A  partner  has  been  guilty  of  such  conduct  as  tends  to  affect  prejudi- 
cially the  carrying  on  of  the  business, 

(d)  A  partner  willfully  or  persistently  commits  a  breach  of  the  partnership 
agreement,  or  otherwise  so  conducts  himself  in  matters  relating  to  the  part- 
nership business  that  it  is  not  reasonably  practicable  to  carry  on  the  busi- 
ness in  partnership  with  him, 

(e)  The  business  of  the  partnership  can  only  be  carried  on  at  a  loss, 

(f)  Other   cirenmstances   render   a  dissolution   equitable. 

(2)   On  the  application  of  the  purchaser  of  a  partner's  interest  under  sections 

28  or  29:  .^    ,  •     ,  .        , . 

(a)  After  the  termination  of  the  specified  term  or  particular  undertaking, 

(b)  At  any  time  if  the  partnership  was  a  partnership  at  will  when  the  in- 
terest was  assigned   or  when  the  .-linrging  order  was  issued. 

Sec.  33.— General  Effect  of  Dissolution  on  Authority  of  Partner.  Except  bo 
far  as  may  be  necessary  to  wind  up  partnership  affairs  or  to  complete  transac- 
tions begun  but  not  then  finislied,  dissolution  terminates  all  authority  of  any 
partner  to  act  for  the  partnership. 

(1)  With   respect    to   the   partners, 

(a)  When  the  dissolution  is  not  by  the  act,  bankruptcy  or  death  of  a  part- 
ner;   or, 

(b)  When  the  dissolution  is  by  such  act,  bankruptcy  or  death  of  a  partner, 
in  cases  where  section  34  so  requires. 

(2)  With  respect  to   persons   not   partners,   as   declared   in   section  3o. 

Sec.  34.— Right  of  Partner  to  Contribution  From  Co-partners  After  Disso- 
lu'^ion.  Where  the  dissolution  is  caused  by  the  act,  death  or  bankruptcy  (>f  a 
partner,  each  partner  is  liable  to  his  co-partners  for  his  share  of  any  liability 
created  by  any  partner  acting  for  the  partnership  as  if  the  partnership  had  not 
been  dissolved  unless 


O  THE    UNIFORM    PARTNERSHIP   ACT 

(a)  The  dissolution  being  by  act  of  any  partner,  the  partner  acting  for  the 
partnership  had   knowledge  of  the  dissolution,  or 

(b)  The  dissolution  being  by  the  death  or  bankruptcy  of  a  partner,  the 
partner  acting  for  the  partnership  had  knowledge  or  notice  of  the  death  or 
bankruptcy. 

Sec.  35.— Power  of  Partner  to  Bind  Partnership  to  Third  Persons  After  Dis- 
solution. (1)  After  dissolution  a  partner  can  bind  the  partnership  except  as 
provided  in  paragraph    (3) 

(a)  By  any  act  appropriate  for  winding  up  partnership  affairs  or  completing 
transactions   unfinished   at  dissolution. 

(b)  By  any  transaction  which  would  bind  the  partnership  if  dissolution  had 
not  taken  place,  provided  the  othtr  party  to  the  transaction 

(I)  Had  extended  credit  to  the  partnership  prior  to  dissolution  and  had 
no   knowledge  or   notice   of  the  dissolution;    or 

(II)  Though  he  had  not  so  extended  credit,  had  nevertheless  known  of 
the  partnership  prior  to  dissolution,  and,  having  no  knowledge  or  notice  of 
dissolution,  the  fact  of  dissolution  had  not  been  advertised  in  a  newspaper  of 
general  circulation  in  the  place  (or  in  each  place  if  more  than  one)  at  which 
the   partnership   business  was   regularly   carried  on. 

(2)  The  liability  of  a  partner  under  paragraph  (lb)  shall  be  satisfied  out  of 
partnership  assets  alone  when   such  partner  had  been   prior  to  dissolution 

(a)  Unknown  as  a  partner  to  the  person  with  whom  the  contract  is  made; 
and 

(b)  So  far  unknown  and  inactive  in  partnership  affairs  that  the  business 
reputation  of  the  partnership  could  not  be  said  to  have  been  in  any  degree 
due  to  his  connection  with  it. 

(3)  The  partnership  is  in  no  case  bound  by  any  act  of  a  partner  after  dis- 
solution , 

(a)  Where  the  partnership  is  dissolved  because  it  is  unlawful  to  carry  on 
the  business,  unless  the  act  is  appropriate  for  winding  up  partnership  affairs;  or 

(b)  Where  the  partner  has  become  bankrupt;    or 

(c)  Where  the  partner  has  no  authority  to  wind  up  partnership  affairs,  ex- 
cept by  a  transaction  with  one  who 

(I)  Had  extended  credit  to  the  partnership  prior  to  dissolution  and  had 
no  knowledge  or   notice   of  his  want  of  authority;    or 

(II)  Had  not  extended  credit  to  the  partnership  prior  to  dissolution,  and, 
having  no  knowledge  or  notice  of  his  want  of  authority,  the  fact  of  his  want 
of  authority  has  not  been  advertised  in  the  manner  provided  for  advertising 
the  fact  of  dissolution  in  paragraph   (lb  II). 

(4)  Nothing  in  this  section  shall  affect  the  liability  under  section  16  of  any 
person  who  after  dissolution  represents  himself  or  consents  to  another  repre- 
senting him  as  a  partner  in  a  partnership  engaged  in  carrying  on  business. 

Sec,  36.— Effect  of  Dissolution  on  Partner's  Existing  Liability.  (1)  The  disso- 
lution of  the  partnership  does  not  of  itself  discharge  the  existing  liability  of  any 
partner. 

(2)  A  partner  is  discharged  from  any  existing  liability  upon  dissolution  of  the 
partnership  by  an  agreement  to  that  effect  between  himself,  the  partnership 
creditor  and  the  person  or  partnership  continuing  the  business;  and  such  agree- 
ment may  be  inferred  from  the  course  of  dealing  between  the  creditor  having 
knowledge  of  the  dissolution  and  the  person  or  partnership  continuing  the 
business. 

(3)  Where  a  person  agrees  to  assume  the  existing  obligations  of  a  dissolved 
partnership,  the  partners  whose  obligations  have  been  assumed  shall  be  dis- 
charged from  any  liability  to  any  creditor  of  the  partnership  who,  knowing  of 
the  agreement,  consents  to  a  material  alteration  in  the  nature  or  time  of  pay- 
ment of  such  obligations. 

(4)  The  individual  property  of  a  deceased  partner  shall  be  liable  for  all  ob- 
ligations of  the  partnership  incurred  while  he  was  a  partner  but  subject  to  the 
prior  payment  of  his  separate  debts. 

Sec.  37.— Right  to  Wind  Up.  Unless  otherwise  agreed  the  partners  who  have 
not  wrongfully  dissolved  the  partnership  or  the  legal  representative  of  the  last 
surviving  partner,  not  bankrupt,  has  the  right  to  wind  up  the  partnership  af- 
fairs; provided,  however,  that  any  partner,  his  legal  representative,  or  his  as- 
signee, upon  cause  shown,  may  obtain  winding  up  by  the  court. 

Sec.  38.— Rights  of  Partners  to  Application  of  Partnership  Property.  (1) 
When  dissolution  is  caused  in  any  way,  except  in  contravention  of  the  partner- 
ship agreement,  each  partner,  as  against  his  co-partners  and  all  persons  claim- 
ing through  them  in  respect  of  their  interests  in  the  partnership,  unless  other- 
wise agreed,  may  have  the  partnership  property  applied  to  discharge  its  liabil- 
ities, and  the  surplus  applied  to  pay  in  cash  the  net  amount  owing  to  the  re- 
spective partners.  But  if  dissolution  is  caused  by  expulsion  of  a  partner,  bona 
fide  under  the  partnership  agreement,  and  if  the  expelled  partner  is  discharged 
from  all  partnership  liabilities,  either  by  payment  or  agreement  under  section 
36  (2),  he  shall  receive  in  cash  only  the  net  amount  due  him  from  the  partner- 
ship. 


THE    UNIFOKM   PARTNERSHIP   ACT  7 

(2)  When  dissolution  is  caused  in  contravention  of  the  partnership  agreement 

the  rights  of  the  partners  shall  be  as  follows: 

(a)  Each  partner  who  has  not  caused  dissolution  wrongfully  shall  have, 

(I)  All  the  rights  specified  in  paragraph   (1)   of  this  section,  and 

(II)  The  right,  as  against  each  partner  who  has  caused  the  dissolution 
wrongfully,   to  damages   for  breach  of  the  agreement. 

(b)  The  partners  who  liave  not  caused  the  dissolution  wrongfully,  if  they 
nil  desire  to  continue  the  business  in  the  same  name,  cither  by  themselves  or 
jointly  with  others,  may  do  so,  during  the  agreed  terra  for  the  partnership  and 
for  that  purpose  may  possess  the  partnership  property,  provided  they  secure 
the  payment  by  bond  approved  by  the  court,  or  pay  to  any  partner  who  has 
caused  the  dissolution  wrongfully,  the  value  of  his  interest  in  the  partnership 
at  the  dissolution,  less  any  damagrs  recoverable  under  clause  (lia  II)  of  this 
section,  and  in  like  niauntT  indemnify  him  against  aJl  present  or  future  part- 
nership liabilities. 

(c)  A  partner  who  has  caused  the  dissolution  wrongfully  shall  have: 

(I)  If  the  business  is  not  continued  under  the  provisions  of  paragraph 
(2b)  all  the  rights  of  a  partner  under  paragraph  (1),  sul)jeet  to  clause  (2a 
II),  of  this  section, 

(II)  If  tlie  business  is  continued  under  paragraph  (2b)  of  this  section 
the  right  as  ag.iinst  his  copartners  and  all  claiming  through  them  in  respect 
of  their  interests  in  the  partnership,  to  have  the  value  of  his  interest  in 
the  partnership,  less  any  damages  caused  to  his  co-partners  by  the  disso- 
lution, ascertained  and  paid  to  him  in  cash,  or  the  payment  secured  by 
bond  approved  by  the  court,  and  to  be  released  from  all  existing  liabilities 
of  the  partnership;  but  in  ascertaining  the  value  of  the  partner's  interest 
the  value  of  the  good-will  of  the  business  shall  not  be  considered. 

Sec.  39.— Rights  Where  Partnership  is  Dissolved  for  Fraud  or  Misrepresen- 
tation. AN'here  a  partnership  contract  is  rescinded  on  the  ground  of  the  fraud 
or  misrepresentation  of  one  of  the  parties  thereto,  the  party  entitled  to  rescind 
is,  without  prejudice  to  any  other  right,  entitled, 

(a)  To  a  lien  on,  or  right  of  retention  of,  the  surplus  of  the  partnership 
property  after  satisfying  the  partnership  liabilities  to  third  persons  for  any  sum 
of  money  paid  by  him  for  the  purchase  of  an  interest  in  the  partnership  and 
for  any  capital  or  advances  contributed  by  him;    and 

(b)  To  stand,  after  all  liabilities  to  third  persons  have  been  satisfied,  in 
the  place  of  the  creditors  of  the  partnership  for  any  payments  made  by  him 
in  respect  of  the  partnership  liabilities;    and 

(c)  To  be  indemnified  by  the  person  guilty  of  the  fraud  or  making  the  rep- 
resentation against  all  debts  and  liabilities  of  the  partnership. 

Sec.  40. — Rules  for  Distribution.  In  settling  accounts  between  the  partners 
after  dissolution,  the  following  rules  shall  be  observed,  subject  to  any  agree- 
ment to  the  contrary: 

(a)  The  assets  of  the  partnership  are: 

(I)  The  partnership  property, 

(II)  The  contributions  of  the  partners  necessary  for  the  payment  of  all 
the  liabilities  specified  in  clause   (b)    of  this  paragraph. 

(b)  The  liabilities  of  the  partnership  shall  rank  in  order  of  payment,  aa 
follows: 

(I)  Those  owing  to   creditors  other  than  partners, 

(II)  Those   owing  to  partners  other  than   for  capital  and  profits, 

(III)  Those  owing  to  partners  in  respect  of  capital, 

(IV)  Those  owing  to  partners  in  respect  of  profits. 

(c)  The  assets  shall  be  applied  in  the  order  of  their  declaration  in  clause 
(a)    of  this   paragraph   to  the   satisfaction  of  the  liabilities. 

(d)  The  partners  shall  contribute,  as  provided  by  section  18  (a)  the  amount 
necessary  to  satisfy  the  liabilities;  but  if  any,  but  not  all,  of  the  partners 
are  insolvent,  or,  not  being  subject  to  process,  refuse  to  contribute,  the  other 
partners  shall  contribute  their  share  of  the  liabilities,  and,  in  the  relative 
proportions  in  which  they  share  the  profits,  the  additional  amount  necessary 
to   pay   the  liabilities. 

(e)  An  assignee  for  the  benefit  of  creditors  or  any  person  appointed  by 
the  court  shall  have  the  right  to  enforce  the  contributions  specified  in  clause 
(d)  of  this  paragraph. 

(f)  Any  partner  or  his  legal  representative  shall  have  the  right  to  enforce 
the  contributions  specified  in  clause  (d)  of  this  paragraph,  to  the  extent  of 
the  amount  which  he  has  paid  in  excess  of  his  share  of  the  liability. 

(g)  The  individual  property  of  a  deceased  partner  shall  be  liable  for  the 
contributions  specified  in  clause   (d)   of  this  paragraph. 

(h)  When  partnership  property  and  the  individual  properties  of  the  partners 
are  in  the  possession  of  a  court  for  distribution,  partnership  creditors  shall 
have  priority  on  partnership  property  and  separate  creditors  on  individual 
property,   saving   the    rights    of   lien   or   secured   creditors   as    heretofore. 

(i)  Where   a    partner    has   become   bankrupt   or   his   estate   is  insolvent    the 
claims  against  his  separate  property  shall  rank  in  the  following  order: 
(I)   Those    owing   to    separate   creditors. 


8  THE    UNIFORM   PARTNERSHIP   ACT 

(II)  Those  owing  to  partnership  creditors, 

(III)  Those  owing  to  partners  by  way  of  contribution. 

Sec.  41.— Liability  of  Persons  Continuing  the  Business  in  Certain  Cases.    (1) 

When  any  new  partner  is  admitted  into  an  existing  partnership,  or  when  any 
partner  retires  and  assigns  I, or  tne  representative  of  the  deceased  partner  as- 
signs) his  rights  in  partnership  property  to  two  or  more  of  the  partners,  or 
to  one  or  more  of  the  partners  and  one  or  more  third  persons,  if  the  business  is 
continued  without  liquidation  of  the  partnership  affairs,  creditors  of  the  tirst  or 
dissolved  partnership  are  also  creditors  of  the  partnership  so  continuing  the 
business.  .        ,         ,  .         , 

(2)  ^Yhen  aU  but  one  partner  retire  and  assign  (or  the  representative  of  a 
deceased  partner  assigns)  their  rights  in  partnership  property  to  the  remain- 
ing partner,  who  continues  the  business  without  liquidation  of  partnership  af- 
fairs, either  alone  or  with  others,  creditors  of  the  dissolved  partnership  are 
also  creditors  of  the  person  or  partnership  so  continuing  the  business. 

(3)  "When  anv  partner  retires  or  dies  and  the  business  of  the  dissolved  part- 
nership is  continued  as  set  forth  in  paragraphs  (1)  and  (2)  of  this  section,  with 
the  consent  of  the  retired  partners  or  the  representative  of  the  deceased  part- 
ner, but  without  any  assignment  of  his  right  in  partnership  property,  rights  of 
creditors  of  the  dissolved  partnership  and  of  the  creditors  of  the  person  or 
partnership  continuing  the  business  shall  be  as  if  such  assignment  bad  been  made. 

(4)  "When  all  the  partners  or  their  representatives  assign  their  rights  in  part- 
nership property  to  one  or  more  third  persons  who  promise  to  pay  the  debts 
and  who  continue  the  business  of  the  dissolved  partnership,  creditors  of  the 
dissolved  partnership  are  also  creditors  of  the  person  or  partnership  continuing 
the  business. 

(5)  When  any  partner  wrongfully  causes  a  dissolution  and  the  remaining 
partners  continue  the  business  under  the  provisions  of  section  38  (2b),  either 
alone  or  with  others,  and  without  liquidation  of  the  partnership  affairs,  cred- 
itors of  the  dissolved  partnership  are  also  creditors  of  the  person  or  partner- 
ship continuing  the  business. 

(tj)  When  a  partner  is  expelled  and  the  remaining  partners  continue  the  busi- 
ness either  alone  or  with  others,  without  li(iuidation  of  the  partnership  affairs, 
creditors  of  the  dissolved  partnership  are  also  creditors  of  the  person  or  part- 
nership continuing  the  business. 

(7)  The  liability  of  a  third  person  becoming  a  partner  in  the  partnership 
continuing  the  business,  under  this  section  to  the  creditors  of  the  dissolved 
partnership  shall   be  satislied  out  of  partnership  property  only. 

(8)  When  the  business  of  a  partnership  after  dissolution  is  continued  under 
any  conditions  set  forth  in  this  section  the  creditors  of  the  dissolved  partner- 
ship as  against  the  separate  creditors  of  the  retiring  or  deceased  partner  or 
the  representative  of  the  deceased  partner,  have  a  prior  right  to  any  claim  of 
the  retired  partner  or  the  representative  of  the  deceased  partner  against  the 
person  or  partnership  continuing  the  business,  on  account  of  the  retired  or  de- 
ceased partner's  interest  in  the  dissolved  partnership  or  on  account  of  any  con- 
sideration  promised  for  such  interest  or  for  his  right  in  partnership  property. 

(9)  Nothing  in  this  section  shall  be  held  to  modify  any  right  of  creditors  to 
set   aside   any   assignment   on   the   ground  of  fraud. 

(10)  The  use  by  the  person  or  partnership  continuing  the  business  of  the  part- 
nership name,  or  the  name  of  a  deceased  partner  as  part  thereof,  shall  not  of 
itself  make  the  individual  property  of  the  deceased  partner  liable  for  any  debts 
contracted    by    such   person   or  partnership. 

Sec.  42.— Rights  of  Retiring  or  Estate  of  Deceased  Partner  When  the  Busi- 
ness is  Continued.  When  any  partner  retires  or  dies,  and  the  business  is  con- 
tinued under  any  of  the  conditions  set  forth  in  section  41  (1,  2,  3,  5,  6),  or 
section  38  (^2b),  without  any  settlement  of  accounts  as  between  him  or  his  es- 
tate and  the  person  or  partnership  continuing  the  business,  unless  otherwise 
agreed,  he  or  his  legal  repr<'sentative  as  against  such  persons  or  partnership 
may  have  the  value  of  his  interest  at  the  date  of  dissolution  ascertained,  and 
shall  receive  as  an  ordinary  creditor  an  amount  equal  to  the  value  of  his  inter- 
est in  the  dissolved  partnersliip  with  interest,  or,  at  his  option  or  at  the  option 
of  his  legal  representative,  in  lieu  of  interest,  the  profits  attributable  to  the 
use  of  his  right  in  the  property  of  the  dissolved  partnership;  provided  that  the 
creditors  of  the  dissolved  partnership  as  against  the  separate  creditors,  or  the 
representative  of  the  retired  or  deceased  partner,  shall  have  priority  on  any 
claim  arising  under  this  section,  as  provided  by  section  41   (S)  of  this  act. 

Sec.  43. — Accrual  of  Actions.  The  right  to  an  account  of  his  interest  shall 
accrue   to   any   partner,   or   his   legal   representative,   as   against   the   winding  up 

Eartners  or  the  surviving  partners  or  the   person  or  partnership  continuing  the 
usiness,   at   the  date   of  dissolution,   in    the   absence   of   any   agreement  to   the 
contrary. 

PART  VII.    MISCELLANEOUS   PROVISIONS 

Sec.  44. — When  Act  Takes  Effect.     This  act  shall  take  effect  on  the  

day  of   one  thousand  nine  hundred  and 

Sec.  45. — Legislation  Repealed.  All  acts  or  parts  of  acts  inconsistent  with 
this  act   are  hereby  repealed. 


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